Canadian Real Estate Forum Magazine - Winter Issue 2012

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THE REAL ESTATE FORUM AND GLOBAL PROPERTY MARKET CONFERENCE TEAM: Nataliya Antonenko Roberta Brown Maria Encarnacion Jessica Petrucci Jean Pickering Katherine Radziszewski Frank Scalisi Sarah Segal Shruti Suppiah Informa Canada Inc. Steven Levy President

Global city performance through Q2 2012

George Przybylowski Vice President

GLOBAL CHAIRMEN:

Informa plc Will Morris CEO, Informa Exhibitions About Informa BRINGING KNOWLEDGE TO LIFE Businesses, professionals and academics worldwide turn to Informa for unparalleled knowledge, up-tothe minute information and highly specialist skills and services. Our ability to deliver high quality knowledge and services through multiple channels, in dynamic and rapidly changing environments, makes our offer unique and extremely valuable to individuals and organisations.

www.informacanada.com REAL ESTATE FORUM MAGAZINE The magazine is published three times a year to coincide with the following conferences: SPRING Edmonton/Montreal/Vancouver FALL Calgary/Ottawa WINTER Toronto EDITOR Michel Rémy Michel Rémy is the editor of TheSquareFoot.ca, a commercial real estate publication that specializes in timely market information, news and networking.

4 4

Finding opportunities within an global economic malaise 12 From Ankara to Edinburgh, opportunities Abound

22

CANADA’S LEADING

Real Estate Forum THE GOLD STANDARD FOR REAL ESTATE INTELLIGENCE

FORUM CHAIRMEN: Can Canada dodge the economic bullet again?

The Altus Report for Canada: New supply: excessive or appropriate?

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DESIGN gbc-design.com

Capital & Debt

56

©2012 Informa Canada Inc. Disclaimer: The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of Informa Canada.

Development

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Investment & Leasing

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The shift hits the fan in the housing market

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Explosion in institutional capital: Where do we go from here?

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Appointment notices

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Property taxes crunch

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Roadmap to success in Canadian real estate: Excellence, leadership, and citizenship

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CONFERENCE INFORMATION For more information on Informa Canada Real Estate Conferences, visit the website at

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Canadian Real Estate Forum / WINTER 2012

1

CANADA’S LEADING

Real Estate Forum THE GOLD STANDARD FOR REAL ESTATE INTELLIGENCE

It’s a Risky Business For the past 20 years, The Real Estate Forum has been the gathering place to discuss this nation’s plan for the future of the real estate investment industry.

T

his year, we continue that time-honoured tradition of delving into the expertise of investment pioneers and groundbreakers with a sold-out conference for the seventh year running, attracting more than 2,200 executives from across our dynamic, diverse and globally significant country.

Canada is home to some of the most well known and respected real estate investment experts in the world, 100 of whom will be speaking at the forum on such topics as increased investment to our neighbour to the south; understanding Britain’s London marketplace; deciphering the German trends and the suspected imbalance that has led to volatility; the emergence of new markets in Asia, as well as Latin American markets and if they are now ripe for investing; the challenges faced in implementing a growth strategy and the new directions being implemented; and, finally, how investors have set their

2

Canadian Real Estate Forum / WINTER 2012

sights on specific cities, rather than countries, in their bid to secure global placement during this past year’s activities.

So it is with great enthusiasm that we welcome you to this collective meeting of the minds in our industry, especially those senior executives who have travelled from the far reaches of Europe, and closer to home – the US – to join us in discussing the challenges facing the Canadian office, industrial, retail and multi-unit residential markets.

Your presence, will ensure the sharing of knowledge during this forum will be as diverse and farreaching as our industry itself.

George Przybylowski Vice President Informa Canada george.przybylowski@informacanada.com

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Global city performance through Q2 2012

By Joost Groeneveld

4

Canadian Real Estate Forum / WINTER 2012

Joost Groeneveld

To most observers 2012 seemed like a “wait-and-see” year. Europeans grew weary of the ongoing crisis surrounding the Eurozone’s future. Even some Northern European economies that had at first seemed resilient, if not insulated, finally began to lose momentum. And in the world’s two largest economies, the US and China, political continuity was the year’s looming concern heading into November. Global markets waited throughout the year for signals, sifting through political information overload in the US and puzzling through a political information vacuum in China.

I

n this uncertain environment, global real estate investors continued to find a near-term bonus in many cities: sluggish construction pipelines and wide spreads over government bond yields. But there was still that nagging wait-and-see worry. What about the medium-term macro risks associated with the Eurozone crisis, the so-called “fiscal cliff” in the US, and the prospect of rapidly rising bond yields in many of the affected markets? In fact, this evolving economic landscape in 2012 underscored the patterns of performance seen in cities across the world in the first half of the year.

IPD reviewed quarterly returns in 33 urban markets across seven countries at Q2 2012.1 The upside is that all 33 of these markets achieved positive year-over-year total returns at the All Property level, which includes retail, office, industrial, and apartment assets. The second quarter of 2012 was an important milestone for Dublin, where year-overyear All Property returns rose 2.9% after 16 consecutive quarters of decline.

Canadian Real Estate Forum / WINTER 2012

5

In other cities, a definitive pattern of upward momentum was more elusive.

For the most part, the main urban property markets in Australia, New Zealand, the Netherlands, and Canada held relatively steady over the past year, with little indication of sharp movements in either direction. In the UK, all major cities experienced progressive downward momentum in the property markets over the past four quarters.

Most US cities also lost momentum, particularly in regional pockets of the country. The US Mid-Atlantic markets along the I-95 corridor – Washington DC, Philadelphia, and New York – showed progressively weakening momentum between mid-2011 and mid-2012. A similar pattern could also be seen in the US Pacific northwest markets of Portland and Seattle. Atlanta, one of the last of the major US markets to enter recovery in this cycle, was one of the few to exhibit any sign of upward potential in the first half of 2012.

City Momentum through Q2, 2012 ALL PROPERTY RETURNS, YEAR-OVER-YEAR % pa Source: IPD

Q1 2012

Q4 2011

Q3 2011

25

Q2 2012

20 15 10 5 0

At mid-year 2011, five of the 33 global cities in this group achieved total All Property total returns of 20% or more. All five were in the US. They included Washington DC, Philadelphia, Portland, Seattle, and San Diego. All Property total returns were still positive in these cities at Q2 2012, but momentum was throttling back in some of the Pacific markets. And along the I-95 corridor, the Mid-Atlantic markets from Washington DC to Philadelphia slipped below 10%, a swift retrenchment from the 20+% returns in those two markets just one year earlier.

Out of these same 33 cities, just one, Calgary, broke above the 20% threshold for year-over-year All Property returns at Q2 2012. The energy boom springing from Alberta’s oil sands has helped to tighten office fundamentals in downtown Calgary, much to the delight of the city’s property investors.

Across the Atlantic, Europe’s property markets at Q2 2012

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Canadian Real Estate Forum / WINTER 2012

Edinburgh

Birmingham

Dublin

Amsterdam

Rotterdam

Manchester

London

Wellington

Washington DC

Philadelphia

Sydney

Auckland

Minneapolis

New York

Melbourne

Miami

Los Angeles

Dallas

Portland

Chicago

Brisbane

Houston

San Francisco

Perth

Atlanta

Montreal

Vancouver

Toronto

Boston

Seattle

Denver

San Diego

-10

Calgary

-5

hardly resembled North America, let alone Calgary. True, Dublin has shown upward momentum, but just enough to pull its All Property return even with the rest of Northwest Europe.

Meanwhile, London’s loss of momentum over the past year has pulled it back in line with other cities in the region.

Similar to Canada’s regional energy-led economic boom, Australia has recently experienced rapid development of its natural resources, especially coal and iron ore. Property markets in Australia’s regional cities closest to this activity, Perth and Brisbane, have experienced the impact on property markets, as has Melbourne, which is the home base for many of the country’s major mining companies. Sydney has not held up to this same pace of All Property return performance.

Sydney’s returns over the past year have instead aligned more closely with New Zealand’s cities, especially Auckland.

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Annual Performance Q2, 2012 vs. Q2, 2011 ALL PROPERTY RETURNS, YEAR-OVER-YEAR Source: IPD

Q2, 2012 Most Recent

Exceptional (20% or more) Strong (10-19% or more) Moderate (5-9%) Weak (0-5%) Declining

Q2, 2011 One Year Ago

Exceptional (20% or more) Strong (10-19% or more) Moderate (5-9%) Weak (0-5%) Declining

While all 33 of the cities IPD reviewed showed positive returns at Q2 2012, not all of them experienced capital value growth. As of mid-2012, capital values were down from yearago levels in seven cities. In Dublin, capital values declined 6.8%, the most of any of the cities reviewed. Capital values also slipped in the regional UK cities (Birmingham,

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Canadian Real Estate Forum / WINTER 2012

Manchester, and Edinburgh), the major Dutch cities (Amsterdam and Rotterdam) and in Wellington, New Zealand.

Dublin’s performance is an outlier in many regards. The city’s All Property IPD yield was at a record 8.9% at Q2 2012 and still rising. Dublin’s Q2 2012 income return of 10.3% is by far the highest of the 33 cities IPD reviewed.

Our fund managers know the importance of accurate research.

That’s why they look at each investment from the ground-up.

At Aberdeen, we like to get an accurate view of all potential commercial property investments. And that means getting out on site and researching every opportunity. In fact, our process aims to reduce risk as much as possible to help us deliver enduring performance and consistent returns.

In an increasingly synchronised world, we believe that bespoke research and local knowledge gives us an important advantage.

Therefore we base our property investment professionals in the regions where they invest so they can examine every opportunity personally, gathering invaluable information and insights first-hand.

We have a varied range of property investments, with different investment styles suitable for Canadian investors looking to gain exposure to global real estate markets. What all our strategies have in common is the first-hand research that allows us to pinpoint genuine opportunities and invest with confidence in markets around the world.

And rest assured, if a potential investment doesn’t measure up, we simply won’t invest in it. For more information on Aberdeen property investments – and our investment process – please contact Renee Arnold on 416-777-5570 or email renee.arnold@aberdeen-asset.com.

www.aberdeen-asset.ca This information is not intended as an offer, recommendation or advice with respect to the purchase or sale of any security, and is for informational purposes only. The views expressed herein are not intended to be relied upon as a forecast or guarantee of future results. Investments in property segregated mandates and property pooled funds may carry additional risk of loss due to the nature and volatility of the underlying investments. Property segregated mandates and property pooled funds may not be available for investment by Canadian investors unless the investor meets certain regulatory requirements. There is no recognised market for property and there can be delays in realising the value of property assets.

All Property Returns by City at Q2, 2012 YEAR-OVER-YEAR RESULTS BASED ON LOCAL CURRENCY % pa Source: IPD

Total Return

Income Return

21.9

Capital Growth

2.8

2.6

2.2

Amsterdam

Birmingham

Edinburgh

2.9

3.8

Rotterdam

5

Dublin

5.2

8.2

London

4.4

8.3

Washington DC

Wellington

8.8

Philadelphia

10

Manchester

9.5

9.4

10.2

Minneapolis

Sydney

10.3

New York

Auckland

10.8

Los Angeles

10.4

11.0

Portland

Miami

11.0

Dallas

Melbourne

12.0

11.7

Chicago

13.0

Houston

12.1

13.1

San Francisco

Brisbane

13.5

13.1

13.7

Montreal

Perth

14.0

Vancouver

15

Atlanta

14.3

14.1

Seattle

14.3

Boston

Toronto

15.1

17.3

20

Denver

25

0

Calgary

-10

San Diego

-5

Despite convergence during recent quarters, IPD’s analysis of quarterly data for 33 cities at mid-2012 still shows relatively wide performance variation across cities. Cyclical momentum is declining in many cities, leaving relative performance in a state of flux. In this environment, cross-border property investors will continue to find significant diversification benefits across global markets. In the year ahead, performance is

likely to continue shifting, as national economic performance and local market fundamentals pull these global cities in different directions. Perhaps after a “wait-and-see” 2012, the year ahead will provide a more discernible trajectory. ■ For more information on IPD’s coverage, please contact; Joost Groeneveld, Head of Canada Services, IPD North America. Email: joost.groeneveld@ipd.com Phone: +1 (416) 520-7250 • www.ipd.com/canada

1. IPD covers the annual performance of property markets in 60 cities worldwide across 24 countries. In 33 of these urban markets, the depth of coverage is extensive enough for quarterly coverage as well. The trends described here are based on performance in local currencies and are intended to capture real estate performance alone, without regard to currency fluctuations which might skew cross-border performance. This analysis draws from IPD’s database of more than 66,000 individual assets worldwide (which are valued at US$1.7 trillion) to measure the overall performance of urban markets. The depth of this coverage contributes to a robust comparative data series at the city level. All quarterly data referenced in this analysis are measured as yearover-year rather than quarter-over-quarter.

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Canadian Real Estate Forum / WINTER 2012

REASON No.1

why you want to be part of our

global energy

Of 60 international cities, Calgary generated the highest returns for commercial real estate IPD 2011 Global Property Index

calgaryeconomicdevelopment.com

Finding opportunities within a global economic malaise

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Canadian Real Estate Forum / WINTER 2012

Sylvain Fortier

Michael Turner

Changes in market dynamics around the globe are creating more commercial real estate opportunities for Canadian investors outside of Canada; say the co-chairmen of Global Property Market.

H

eld in conjunction with the Toronto Real Estate Forum, the seventh annual Global Property Market shares strategic information on investment and development in tier-one countries and emerging markets around the world. This year’s event is designed to help investors understand, and deal with, volatility in the global marketplace.

Our panel of experts will examine the increasing trend of Canadian pension funds and REITs wading into international waters and will also discuss the best possibilities in “Old Europe” and “New Europe” as well as the United States, Asia, South America, the Middle East and elsewhere.

“Everybody is very cautious and very focused on Europe, trying to guess what’s going to happen next,” said Global Property Market Co-Chair Sylvain Fortier, Vice President advisory & real estate for Ivanhoé Cambridge. “So that’s as much a concern as a possible opportunity.”

Global Property Market examines how investors should manage risk in the global marketplace while looking at such topics as major trends that occurred in 2012 and how markets handled worldwide turbulence.

Fortier’s fellow Co-Chair Michael Turner, Senior Vice President of investments at Oxford Properties, said market stability depends on your specific investment role.

“How do you manage risks?” Turner asks. “In my opinion, the most important thing is culture. It’s about having a certain type of culture and about having an instilled set of behaviours and an instilled discipline in your people, in your decision-making processes, and in how you construct your portfolio.” ■ Canadian Real Estate Forum / WINTER 2012

13

PETER BALLON

Going in partnership where markets lead “We invest with the intention of holding the real estate indefinitely” “I’ve seen three major dips in my career.

People who enter the field think that real estate only goes up, but it is a cyclical business.”

Peter Ballon, Canada Pension Plan Investment Board (CPPIB)

T

he real estate market has been particularly hot over the past couple of years, but it’s likely to quieten down now.

“Last year and the previous year were great years to be buying real estate,” says Peter Ballon, Vice President, of Real Estate Investments in the Americas for the Canada Pension Plan Investment Board (CPPIB). “I anticipate that we will be less active in the next couple of years than the last two years, but we still expect to see some interesting opportunities.”

Ballon, who was among the team responsible for investing some $8 billion in equity last year, says that there was a shortage of equity capital that enabled his group to invest in several attractive properties at good prices. Their group is unusual, however, in that they only invests in real estate when it can get the best return-oninvestment.

“CCPIB is somewhat unique compared to other funds in that we don’t have any specific allocations either to real estate or within real estate,” said Ballon. “We simply view real estate as providing returns against a certain benchmark, which is really a basket of risk profiles. If we think we can get a good risk-adjusted return on real estate, then we invest in that category, and if we don’t, then we don’t invest in that category. It’s all about assessing the risk and seeing if we’re being adequately paid for it.”

Tracey Arial – The Square Foot

F RUSSELL CHAPLIN

Oh Canada: the view from overseas As Chief Investment Officer of Aberdeen Asset Management, Russell Chaplin has an eye on the world. As a whole, the global market is in a sustained period of weakness, he says, with some exceptions.

14

Canadian Real Estate Forum / WINTER 2012

rom where he sits in London, he describes the UK market as “relatively weak, with a strong bias towards core prime type assets and away from secondary assets.” Northern Europe, he says, is enjoying fairly robust economies while Southern Europe

“Canada is considered a favourable market in a global portfolio. The difficulty is that stock is relatively tightly held and the best assets trade infrequently.”

Russell Chaplin, Aberdeen Asset Management continues to struggle. Australia looks good. Japan shows some opportunity in both the residential and office sectors.

China is so large and has so many opportunities it cannot be disregarded in this market. The US is recovering fairly well.

As for Canada: How does our

country look to an international real estate investor? The short answer, Chaplin says, is that it’s “considered a favourable market in a global portfolio.” After all, Canada has weathered the economic storm of recent years and maintained a good balance of demand and supply.

But there is a longer answer…

Overseas investors find Canada somewhat difficult to access. “The difficulty is that stock is relatively tightly held and the best assets trade infrequently,” Chaplin says. “When people look at Canada they typically look to the US first. And though Canada is probably more resilient, with a less cyclical economy and good stock, it’s not particularly easy for us to access.”

As he scans the globe for new growth opportunities for 2013, Chaplin says, the good and bad news is that the European economy might continue to struggle. “There is still a great deal to sort out for the moment,” he says, “but the flipside is opportunity. Most of the time, you make most of your money in markets where there is risk.”

Michelle Morra-Carlisle – The Square Foot

EDUARDO GÜÉMEZ

Latin American opportunities Forward-looking investors like the financial resilience and increasing transparency of markets in Latin America.

“T

here are still growth opportunities in Brazil and Mexico, where we see opportunities both for development and acquisitions,” said Eduardo Güémez, a Managing Director of LaSalle Investment Management.

“Canadian investments like the big pension plans are starting to look back at Mexico as an attractive proposition given the stability it showed throughout the recent financial crisis,” Eduardo Güémez, LaSalle Investment Management

Mexico’s office market is extremely attractive, although it’s getting harder to find assets. “We see a more crowded market given the influx of new capital from the local pension plans who before could not invest in real estate and are now doing it actively. That gives a lot more liquidity and more exit strategies.”

Güémez also likes industrial markets in Mexico, especially over the long term. “Clearly, the industrial market will have substantial growth given the reindustrialization of the whole of North America. Given changes in natural gas pricing and the whole

dynamics of that industry, and the latest big thrust by the US to try to bring back manufacturing – that’s going to open up a lot of opportunities.”

Investors looking for new growth markets are also beginning to consider Columbia and Peru, he says. “Those two markets have similar stories to what Mexico had several years back. You have a growing middle class, more access to credit, and a more stable market for new opportunities that are maybe not as crowded as the other countries.”

Tracey Arial – The Square Foot

JONATHAN HULL

European markets geographically and economically polarized The geographic and economic position of various markets in Europe are now working together to encourage foreign investment towards the north and away from the south.

“W

e’ve seen a huge drop-off in turnover in those southern markets but at the same time, we’ve seen very strong capital flows into the northern markets and perhaps pricing is even more aggressive than it’s been recently,” says Jonathan Hull, Managing Director – CBRE Global.

“Projects with high level of vacancy in markets that are challenged in the south are finding it very difficult to achieve anything like acceptable pricing.

Whereas in London, where there is relatively low supply in the market, we’re seeing premium pricing being paid for very core product. Short leases are not seen as such a bad thing in those markets where

“Short leases are not seen as such a bad thing in those markets where tenant demand is high in core locations.”

Jonathan Hull, CBRE Global

tenant demand is high in core locations.”

Meanwhile, the southern areas of Europe – including Greece, Italy, Spain and Portugal – are struggling with debt crises domestically and can’t attract capital in foreign markets because of increased risk.

“We’re seeing the austerity measures that are being taken in those countries having an impact on the leasing markets and consequently on the sentiment from investors and therefore on turnover,” says Hull.

“With the softness in the occupational markets in most countries, leasing risk and vacancy are obviously very difficult to price and also very difficult to raise debt.”

Tracey Arial – The Square Foot

Canadian Real Estate Forum / WINTER 2012

15

SIMON MARTIN

Mitigating investment risk during volatile times Having spent a lot of time talking to investors in North America, Simon Martin has found they tend to fall into one of two categories – either low risk, or high risk.

“I

n the low risk bucket with a competitive cost of capital, people look at real estate as a fixed income product. Over the last two or three years, spreads have compressed and costs of capital have gone down much lower than where they were four or five years ago,” says the head of research and strategy at Tristan Capital Partners.

“In the high risk bucket, the costs of capital stayed roughly the same. The risk free rate of return has come down, so the premium you can earn has increased, but the actual nominal cost of capital for a high risk strategy hasn’t changed much. Historically, the premium for higher risk investing is between 800 to 1000 basis points. It’s now more like 1200 to 1500 basis points.”

The cost of risk free money “You have to be has gone down, and what that has meant, says Martin, is focused on the investors have continued to put local dynamics that capital out.

“Investors have had a you’re dealing with limited tolerance within the real on a daily basis. estate asset class for assets with any discernable amount of risk Only then can you associated with them. Our expe- discern what risk rience has been they have allocated to one of two strategies - you’re being asked either to distressed real estate or to accept into your to very core trophy strategies basket of assets.” where they look for safety.”

In 2013, Martin is seeing a Simon Martin move towards a core strategy, Tristan Capital Partners driven largely by the volatility of the past five years. He notes that investors’ perceptions of risk outside of certain cities are very different even within the same country.

“When you ask an investor to bifurcate his lower risk strategy into markets, he does it by city and not by country.

You have to be focused on the local dynamics you’re dealing with on a daily basis. Only then can you discern what risk you’re being asked to accept into your basket of assets.”

Barbara Balfour – The Square Foot

BRADLEY OLSEN

European development projects equity-hungry “It’s a good time for Canadians who are looking to diversify out of Canada,” says international real estate advisor.

I

nvestors started the year holding on to cash, out of fear about how the European financial crisis might unfold. They are beginning to spend again now, but at significantly lower levels than before the crisis.

Financiers are so cautious that even German developers with sensible projects in good locations with credit-worthy tenants under long-term leases have to scramble for equity.

“In the pre-crisis, German bankers would have financed those projects at 80 to 90% of cost, whereas now they might finance 60% maybe 70%, if it’s absolutely the best-of-the-best triple A in every respect,” says Atlantic Partners Ltd. President Bradley Olsen. “That gap is a very significant one for the developers who weren’t used to putting up that kind of equity.

They’re out scrambling looking for equity sources.”

When it comes to acquisition, most foreign investors focus on major markets in Europe, says Olsen. London remains the top receiver of international capital in the office sector, followed by Paris and Munich, then Hamburg and Dusseldorf. Sweden, Norway and Finland are also receiving lots of attention in the office sector, while Poland is attracting everyone.

“Warsaw has had a pretty good run in the last twelve months,” says Olsen. “Poland is the next core market in Europe, in particular for logistics and retail, perhaps for investors too. I think it will continue to attract a lot of capital.”

Tracey Arial – The Square Foot

16

Canadian Real Estate Forum / WINTER 2012

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JOHN SAUNDERS

Expecting the Asia-Pacific market to sink? You could be waiting a while It’s doing as well, or maybe better, than people were expecting, because people were expecting that with the slowdown in China, (the rest of) Asia would be pulled down with it,” said John Saunders, CEO – Asia, MGPA

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The predicted collapse of Australia and Asia’s anticipated struggles based on historical trends have failed to materialize, he added.

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“So, yes, I think Asia’s chugging along pretty nicely actually,” said Saunders.

In his view, the two commercial real estate investment hot spots in Asia-Pacific are Australia and Japan. A distinct shift of focus to Japan is occurring.

“Japan has been on and off for two decades now,” he said. “But it’s definitely going through a period of time where everyone’s re-focusing on it again. We’ve been buying there for the last six months, and so far that has proven to be absolutely the right thing to have been doing. So we’ll let it continue.”

Australia is generating considerable investor interest because there is currently a large funding gap in some areas of the country.

“We’ve got very expensive equity,” he said. “For someone to be interested in our equity, that requires a 20 % IRR, there has to be something badly wrong with the debt market,” he said. “But I’m pleased to say there is something badly wrong with the debt market in Australia, and I think there’s a good opportunity there.”

Saunders said his company has spent a “huge amount of time” over the past 10-12 years trying to find suitable potential local partners, but it only has a list of seven or eight.

“We have a couple of wonderful partners that we work with on a regular basis, and we really marry up well, but it’s really hard. The biggest barrier to entry is finding the right partner and trying to work with them.

“Basically, it is like a marriage. Having a very clear understanding – before you go in – of what each other’s reservations are, and what your alignments are, is critical. There’s no use going in if you’re an opportunity fund and you want to flip the thing in three years, and you find the other guy wants to hold if for 10. Don’t automatically jump to conclusions. Spend time with your partner up in China.

You’ve got to understand their way of thinking.

You’ve got to understand the whole issue of space, and you’ve got to just really work on (the relationship.) Also, you’ve got to pick your bad books, too.

There’s no point fighting over everything.”

When it comes to emerging markets, Indonesia is the one that is starting to pop up on everyone’s radar. But, again, a lack of transparency in governance is a major concern. Indonesia’s political climate is not stable; there’s always a fair amount of political infighting, and influential families always play a role in business and society. The families’ influence “rises and wanes” along with the politics.

Like in China, you need to pick your partners carefully.

Michel Rémy – The Square Foot

18

Canadian Real Estate Forum / WINTER 2012

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CLAUDE SIROIS

Real estate market conditions in Latin America

L

atin American countries provide continuing opportunities for real estate developers and investors.

The key to success, according to Claude Sirois, Executive Vice President of Commercial Investment and Emerging Markets for Ivanhoé Cambridge, is to have a very good understanding of the local markets and, more importantly, a trustworthy and compatible local partner.

In Sirois’ experience, the trends driving growth in these countries include the following:

• Demographics. The growing middle class fuels investment opportunities in different asset classes; • Diversifying economies. Exports are important for some countries, but internal growth is also generating more solid domestic consumption and service based industries, and; • Increasing access to capital. More and

“We foresee that 2013 will continue to bring interesting investment opportunities in Latin America, specifically in tier 1 cities but also in tier 2 cities where urbanization coupled with growth is present.”

Claude Sirois, Ivanhoé Cambridge more institutional investors devote time to explore investment opportunities in these countries. A more stable economical foundation, a higher level

of transparency and a higher rating by the agencies are all sending a positive message to the investment community.

“We foresee that 2013 will continue to bring interesting investment opportunities in these countries, specifically in tier 1 cities but also in tier 2 cities where urbanization coupled with growth is present,” Sirois says. “In all cases, though, investment fundamentals remain the same. Location is key, but in these countries execution is even more important.”

The business plan for Ivanhoé Cambridge is to consolidate its positions in countries where it currently has operations. In Latin America, at this stage a key country is Brazil – which Sirois says can hardly be called an “emerging” market anymore, and where the company directly and indirectly owns more than 22 shopping centres. “However, we remain open to exploring other countries,” he adds, “assuming we are comfortable that we have found the right business model where we can grow our business through a compatible local platform.”

Michelle Morra-Carlisle – The Square Foot

SUSAN WALLACE

Buying market in the US full of potential, say investors Commercial real estate investors, take note. The next 12 to 24 months will provide no shortage of excellent buying opportunities in the US. This is due to a number of reasons, says Susan Wallace, Executive Managing Director at USAA Real Estate Company.

“W

e still have $1.5 trillion of debt coming due in the next buildings in San Francisco that required additional capital. three years. We are seeing a trend where, since the They’re also keeping their eyes on grocery-anchored retail centres in economic downturn in 2008 and 2009, properties have secondary markets boasting high population and job growth, as well as the been able to support the debt they’ve been carrying. very strong industrial investment sector.

“However, many of their owners do not have the Wallace believes the fiscal cliff in the US will be “We still have $1.5 trillion additional capital required to fund tenant improvement, solved without creating a huge economic downturn. leasing commissions and capital expenditures for these of debt coming due in the “There will be a huge impact on the stability of job assets. So they’re looking in the marketplace to recapicreation; our corporations will feel more comfortable next three years.’’ talize existing assets that may be cash starved, even spending the capital on investment in technology and Susan Wallace though they’re performing under current mortgages. improvements in their industries, which has been lacking “We think that’s a trend that will continue in the over the last few years. I don’t think we’re going to see near future.” any high growth but I do think we’re going to see a much better environment Global has already taken advantage of such portfolio opportunities, for the future expansion of business in the country.” having just closed on 57 office buildings in southern California and four office Barbara Balfour – The Square Foot

20

Canadian Real Estate Forum / WINTER 2012

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From Ankara to Edinburgh, opportunities abound Jacques Gordon readily acknowledges that the lingering fiscal crisis in Europe, the United States inching toward a fiscal precipice and China’s uncertain prospects under its new leaders clouds the commercial real estate investment horizon.

“E Jacques Gordon

22

very country has work to do. There are a million different ways in which the world economy can go wrong,” cautioned the head of research and strategy at LaSalle Investment Management, which oversees nearly $50 billion in real estate assets around the world.

He said that of the world’s three biggest economies, “the one that has the greatest odds of spiraling out of control is Europe.”

“China is opaque. It’s hard to know where they’re headed and – while the U.S. is, absolutely, facing a fiscal cliff – the odds of it going over the edge are the lowest.”

Undaunted by the fiscal gloom, Gordon sees ample overlooked opportunities for canny commercial real estate investors.

“In major markets, there is almost too much capital that wants leased strong or dominant property,” he observed, while noting that the distress caused by the withdrawal from commercial real estate lending by big European lenders like Crédit Agricole, Eurohypo, Deutsche Bank and Société Générale has opened the door to new investors.

“In some instances, it’s getting crazy,” he warned, “as in I would advise you to sell into those markets.”

With a tsunami of risk-averse money swamping prime Hong Kong, Shanghai, Sydney, Toronto, London, Paris, Frankfurt, New York, San Francisco and even São Paolo and Warsaw property markets, Gordon suggested that much more interesting yields are on offer in countries and real estate that are perceived to be less stable.

“Turkish debt just got its first investment-grade rating in quite some time,” he noted, “lowering its

Canadian Real Estate Forum / WINTER 2012

cost of debt, which is a good thing for real estate.”

“If you find it too exotic to head off to Istanbul or Ankara, there are still openings in France and the United Kingdom for investors who are willing to look north of London or south of Paris,” he added.

“In Edinburgh, some fully leased modern buildings offer double-digit yields,” Gordon shared. “I can’t think of an advanced economy anywhere in the world that has such a high yield.”

In East Asia there is still plenty of money to be made by those who eschew the big centres such as Beijing and Shanghai, he maintained.

“Malaysia looks very interesting,” Gordon remarked. “Not just Kuala Lumpur, but other parts of that country. It’s a tough market for foreigners, but it’s opening up.”

“Japan remains attractive,” he added. “It doesn’t have a lot of foreign capital trying to get in and there are property types there that domestic firms are not investing in.”

Gordon singled out warehousing and logistics as a niche where foreign real estate investors have thrived.

“We call it Japan logistics,” he explained.

“Japanese consumers want better-quality, lower-cost goods. Japanese firms are delivering that by streamlining their supply chain. Half-century-old warehouses are giving way to far more efficient six-storey logistics buildings.”

“In Latin America, Brazil is slowing down,” Gordon concluded. “The urbanization process still has a long way to go there, but often you can now find better value in Mexico, which has a slight edge, because it is growing faster than Brazil.” ■ Robert Frank – The Square Foot

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CANADA’S LEADING

Real Estate Forum THE GOLD STANDARD FOR REAL ESTATE INTELLIGENCE

Can Canada dodge the economic bullet again?

When financial markets tanked in 2008, Canada sidestepped the economic bullet as deftly as Keanu Reeves’ character Neo in The Matrix.

24

Canadian Real Estate Forum / WINTER 2012

Mark Rose

“O

ur conservative banking and financial system weathered the storm better than most – if not all – others,” affirmed Mark Rose. “That fostered investment and business confidence which in turn let commercial real estate investment continue unabated.”

“Businesses growth persisted, driving occupancy rates higher and higher, and that led to a very stable, if not a very positive market,” observed Avison Young’s CEO. “Canada has performed so well, especially in natural resources, that growth strategies have become more and more difficult to develop. Consequently, I believe that in 2013, we are going to see Canadian markets either pause or reach a temporary peak.”

“Weak energy prices could slow down the Western Canada economic juggernaut,” added Phil Gillin.

With the loonie flirting with post-Confederation highs, industries east of the Lakehead which thrived after the Canadian dollar plunged to record lows a decade ago, now have plenty of catch-up to do in productivity, if they want to remain competitive.

“That continues to plague Canada’s manufacturing sector,” explained Sun Life Financial’s Managing Director of Canadian Property Development, “slowing demand for industrial real estate in Ontario and particularly in Quebec.”

Phil Gillin

“In addition, the American economy seems to be chronically stalled,” he continued. “Together with slowing economies in India and China, this could impede growth in Canada, as we move forward.”

Gillen acknowledged that Canada is at least in the enviable predicament of starting from a position of great strength.

“The real estate market have been very strong during the last five years, both in terms of supply and demand as well as from an investment perspective,” he said.

“Canada has a very robust real estate market,” Rose agreed.

“But you can no longer talk about Canadian real estate investment without being alert to global investment, finance and decision making developments,” he cautioned. “Whether you are an owner or an occupier, developments abroad affect you more and more each day.”

Rose sees natural resources and the thriving West Coast logistics industry as a stabilizing influence, but is concerned that Ontario’s exuberance for condo development might lead to oversupply.

“While gasoline prices are driving a trend – particularly young folks – to move back downtown, for many of us there are just too many cranes in the air, particularly in downtown Toronto,” he concluded.

Robert Frank – The Square Foot

Canadian Real Estate Forum / WINTER 2012

25

THE ALTUS REPORT FOR CANADA

New Supply EXCESSIVE OR APPROPRIATE? The details vary widely and materially impact performance.

That is why the averages, and simple answers to complex questions, can be so dangerous. Simple is appealing, but is almost always dangerous. Having been appropriately cautioned, we are pleased to share with you this overview.

By Sandy McNair

W Sandy McNair

26

e will look at the very different office markets in Vancouver, Calgary, Toronto and Montreal and start with some facts.

Over the past decade each of these office markets have seen significant new supply. The impact in Calgary has been dramatic, with fully 24% of the total inventory being less than 10 years old. In Vancouver, Toronto and Montreal the rates are more moderate at 10.0%, 9.3% and 7.9% respectively Chart 1 (on page 10) also illustrates Vancouver’s aggressive growth plans, with the 3.8 million square feet currently under construction representing over 73% of the space added in that market over the past

Canadian Real Estate Forum / WINTER 2012

decade. Toronto is next at over 30%, with Calgary and Montreal both under 22%.

This growth in inventory has been distributed unevenly across the downtown, midtown and suburban office markets, resulting in declines in the proportion of total inventory in the downtown.

Looking forward we will reasonably assume the office projects that are under construction will be completed. More projects are positioned to start and some of them may proceed, however we will not include them in these calculations, yet. All of this generates a past, present and future view of the proportion of each market that is downtown.

Chart 1

Significant New Supply Underway and Completed Over Past 10 Years New Supply Q4 2002 thru Q4 2012 # of Buildings Total Office Area Currently Under Construction # of Buildings Total Office Area Current Under Construction as a Percentage of 10 Year New Supply %

VANCOUVER

CALGARY

TORONTO

MONTREAL

62 5,186,245

100 15,200,387

117 15,747,336

59 7,039,563

24 3,796,692

18 3,324,496

19 4,773,829

11 1,519,237

73.2%

21.9%

30.3%

21.5%

TORONTO 42.1% 41.1% 41.7%

MONTREAL 59.6% 57.2% 57.1%

Chart 2

Downtown Inventory as a % Of Total Office Market Past – Q4 2002 Present – Q4 2012 Future – Q4 2016

VANCOUVER 50.1% 45.9% 45.6%

CALGARY 68.4% 63.7% 62.9%

Let’s move beyond the facts and into some opinions. The motives to locate downtown as opposed to the suburbs (and vice versa) vary by market, employer and employee. Commute times and costs have been climbing sharply as investment in transit, roads, bridges and parking in all of these downtowns fails to keep up with the net impact of the growth noted above. In the suburbs, new office buildings can be built faster and the land is less expensive, resulting in lower costs and rents.

But what is behind this spike in new supply?

What are the motives? Here are several unrelated, but parallel forces that are driving new supply to differing extents in each of Vancouver, Calgary, Toronto and Montreal: • Flight to Quality – in the accelerating Battle for Talent, some employers use new office buildings, premises and amenities to help them recruit, retain and grow talent. The technology, design and density utilized in these “new” buildings makes them distinctly different from most ‘existing’ buildings. The “new” also feature lower energy consumption, operating costs and capital amorti-

28

Canadian Real Estate Forum / WINTER 2012

zation charges. And an increasing proportion of the existing inventory is obsolete or becoming so, even if material capital investments are an option from an engineering and prudent investor perspective. So, new supply now has a role as replacement for a growing portion of the existing stock. The notion that most occupiers view office space is a homogenous commodity is even more flawed and out-of-touch.

• Investor Demand – Commercial Real Estate in Canada, including most major markets is in favour and highly desired by investors. When existing office buildings become available for sale, the bidding is intense, the prices high and yields low, leaving very little room for surprises. Accordingly, some investors prefer to build new. The pressure to place capital and the appeal of having a diversified portfolio can motivate giant pension funds, individual investors and owner/occupants to stretch a little further when making the case for new supply.

• Development Permits – the ongoing evolution of the process to obtain development permits in some markets has been modified to encourage

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Looking ahead, what will happen to all this new space? During the past 6 years, with very few exceptions across Canada, new office buildings have leased quickly. The leasing risk of new supply has most often been born by existing buildings – sometimes Class A, sometimes Class B and C are the ones most impacted by increased vacancy and/or sharply lower rents. more office space at locations with high residential densities and/or transit capacity with the result that some residential projects are approved conditional upon more office space being built.

• Incremental Demand – as both vacancy and availability rates have declined to levels many describe as ‘too tight’, some new supply is desired to help return the market to equilibrium. The number of leasing options available to large, mid-size and smaller tenants varies widely. When the number of options for large users declines to too few, then new supply can be triggered even though there may be amble options for mid-size and smaller tenants.

Looking ahead, what will happen to all this new space?

During the past 6 years, with very few exceptions across Canada, new office buildings have leased quickly. The leasing risk of new supply has most often been born by existing buildings – sometimes Class A, sometimes Class B and C are the ones most impacted by increased vacancy and/or sharply lower rents. This pain is often felt very unevenly. Within each market, submarket and node we expect multiple pockets of pain and strength based upon the specifics of each building owner and manager and their investments in their buildings, their design and their tenant’s satisfaction and retention. Vancouver warrants a special comment. This is a unique office market that is bifurcated into a very small number of larger users and a very large number of very small users. The pain that will felt by some investors in this market will be material.

Industrial new supply has been modest since 2008/2009.

The proportion of the total inventory held by owner/occupants has been increasing. Rents have been constrained by declines in manufacturing and exits by US-based distributors and manufacturers. However there are notable Build-to-Suit projects underway across the country and innovative development and redevelopment opportunities are receiving attention.

30

Canadian Real Estate Forum / WINTER 2012

Canada’s Retail Landscape is changing quickly with multiple new-to-Canada retailers arriving or kicking the tires. While some US retailers (Costco, The Gap, Staples, Home Depot, Wal-Mart) have operated in Canada for 20 years, the pace of arrivals appears to be more than replacing weakened incumbents. Incremental new retail supply and shifts in retail format will result in big winners and big losers at the same time, in the same market and often at the same locations. Retail has always had a rapid rate of re-invention, but we are in a unique phase with the pace, risks and opportunities all at accelerated levels.

So, simple answers to complex questions. Having been appropriately cautioned, we are pleased to have shared this overview with you. If you wish, we’d welcome the opportunity to get into the details with you. ■ Sandy McNair is the President of Altus InSite. The Altus InSite team leverage extensive team-wide experience and market information to provide perspective to clients in Canada’s Commercial Real Estate Investment, Development and Leasing communities. www.altusinsite.com

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ANDREW BIBBY

Real estate remains a solid investment out west

Real estate investors need not be concerned that the market may have stalled or become saturated, particularly out west where Grosvenor Canada Ltd. has been investing in multiple projects.

W

ith offices in Calgary, Vancouver, San Francisco and Washington, DC, the company holds several condominium projects in each market - and they’re all doing well, says President Andrew Bibby.

In downtown Calgary, these include Drake on 15th Ave and 6th Street and Avenue on 5th Ave and 12th St; in North Vancouver, Grosvenor holds 15 West.

“We have made some acquisitions over the last few years, but we’ve probably tended to do a little more development in Canada,” says Bibby.

“I think generally development is a good thing to pursue, simply because there isn’t an outrageous amount of competition and construction prices have remained reasonable.

“The market has held on really well because of the strength of the banks and the economy. Real estate provides a yield and it’s a hard asset and people take a great deal of comfort from that. There’s a prospect of inflation and real estate is believed to be a good hedge against it. So, for a variety of reasons, real estate has come out of this downturn in pretty good shape.”

Unlike markets in the US that rely more heavily on employment to fuel growth, people tend to move to places like Vancouver for lifestyle or investment purposes, says Bibby, who notes several development projects that have sold out very quickly. “It’s been rapidly accepted that if you have a condominium that’s well priced and on a transportation orientated site, you’re probably going to do quite well.

“Overall, I think we’re in completely uncharted territory. We’ve never had interest rates this low for so long. At some point there’s going to be a big adjustment.”

Barbara Balfour – The Square Foot

TREVOR BLAKELY

Diversification, not myopia, is key to future returns in real estate

D

espite volatility in broader equity markets, we’ll continue seeing a strong desire for yield product, says Trevor Blakely, CEO of Forgestone Capital.

“The desire to put money into real estate’s various forms continues to be very strong and will likely continue for the foreseeable future,” he says.

Even if interest rates start to rise, impacting pricing and the performance of real estate investment trusts, the fundamentals will remain very strong. “There will likely be some push back in value but not significant. I think a slight adjustment wouldn’t be bad for the market,” says Blakely, who predicts the need for achieving better returns in real estate will be more pronounced next year.

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Canadian Real Estate Forum / WINTER 2012

“Our objective is to identify situations where we can get superior risk adjusted returns, rather than chasing the same type of opportunity that the broader market is chasing.”

Trevor Blakely , of Forgestone Capital “Historically, if you look at the last three years, most of the gains have been made on cap rate compression – values increase. In a broader market most of us assume that’s not going to continue, so the need for institutions, pension funds, life compa-

nies - all of those defined yield enhancements - is going to be more pronounced.”

Examining multiple asset classes will be essential to achieving superior returns, says Blakely.

“Our objective is to identify situations where we can get superior risk adjusted returns, rather than chasing the same type of opportunity that the broader market is chasing.

“I think it’s taking a look at something with a different set of eyes and seeing some value creations that other people don’t see in order to get an enhanced return, versus just chasing a stable, no-risk product that doesn’t have upside potential.

The way to do that going forward, is not being myopic in the focus and looking at only one asset class, hoping it’s going to achieve.”

Barbara Balfour – The Square Foot

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DON CLOW

Midmarket acquisitions offer stable, balanced growth

PETER COHOS

Downtown development: Getting with the times

The top five midmarket cities in Atlantic Canada show growth rates above the national average, says Don Clow, President and CEO of Crombie REIT, the company that owns St. John’s largest shopping centre and other commercial properties across Canada.

A

tlantic Canada mid-markets also tend to be low risk, he says. “You have a high level of government and education, an established private sector and a growing portion of new private sector development that operates with technology that could be located anywhere in the world. They choose to be in Atlantic Canada because of the “The grocers have quality of life.” done their homeClow has also found that mid-sized markets in Ontario, work, the drug such as Brampton, Burlington, stores have done London Ottawa, St. Catharines and Windsor are proving just as their homework solid, as are mid-markets out and they want to west, such as Lethbridge.

Even cities that aren’t be in these locagrowing quickly are worth tions for a 20, 30, looking at, says Clow, because they tend to be more resilient 40, 50 year period. than larger markets, especially They’re very during financial crises. Leases tend to last for very long stable.” periods, especially when tenants Don Clow, Crombie REIT are grocery or drug stores. “The grocers have done their homework, the drug stores have done their homework and they want to be in these locations for a 20, 30, 40, 50 year period.

They’re very stable.”

Land value doesn’t increase in mid-markets as fast as it might elsewhere, but the risk is lower.

“The cost of debt in these smaller markets is no higher than it is in the top six markets in the country, but the cap rates are clearly higher and as a result, you end up with a wider spread between your cap rate and your mortgage costs and you end up with a higher level of accretion,” says Clow.

Tracey Arial – The Square Foot

Canada’s big cities are seeing no shortage of development. What’s driving the demand?

I

n Calgary, new construction downtown is often due to mid- to largesize oil companies looking for larger floor plates to accommodate greater numbers of people on fewer floors. In Vancouver, the sudden surge could be simply a case of pent-up demand, since there hasn’t been much downtown development in the city in at least 10 years. Similarly in Toronto, it could be a case of pent-up demand. But it could also be a reflection of urbanisation according to Peter Cohos, Managing Director and CEO, Triovest Realty Advisors Inc. “In the 1980s, if people “In Toronto specifically,” he says, “you’re seeing some looked at their workcompanies move their offices force, many were in the from the suburbs back to downtown.”

40s and wanted a house, Much of the condo backyard, and white development in Toronto in recent years has focused on picket fence. Today, tenants in their 30s.

Companies wanting to attract companies wanting to that next generation of attract younger employees are finding them employees will find them in the downtown core. It’s a significant shift from the in the downtown core.”

1980s, Cohos says, a time Peter Cohos, when “if people looked at their workforce, many were in Triovest Realty Advisors Inc. the 40s and wanted a house, backyard, and white picket fence.”

Today, rather than moving offices into the quiet suburbs companies are going full-out urban, as their employees increasingly seem to be. For real estate investors, keeping up with downtown development requires keeping up with what drives building occupants.

“To the younger employees, the atmosphere in which they work is very important,” Cohos says. “They want collaborative work spaces, lots of light, and a company that’s socially responsible and that they can be proud of.”

Michelle Morra-Carlisle – The Square Foot

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Canadian Real Estate Forum / WINTER 2012

MICHAEL COOPER

Trial and triumph in the European market

A

s an international investor, Michael Cooper, Vice Chairman & CEO of Dundee Real Estate Investment Trust, has become well acquainted with the German market over the past 15 months. At this time last year it seemed difficult to acquire a property at a price he perceived as fair, but today he finds the market “more reasonable, with the possibility of reasonable financing.”

Here in Canada that’s a major understatement.

Dundee’s recent acquisition of “doubleU”, a high-quality multi-tenant office building in Düsseldorf, was at a cap rate of 6.4%, and mort-

“The Canadian real estate market is not too hot, not too cold. We’re seeing slow growth, some expansion, pretty good employment numbers, demand for space. It should be okay. I think it’s stable.”

Michael Cooper, Dundee Real Estate Investment Trust

gage financing at a 58% loan-to-value with a face rate of 2.09%.

While Cooper admits that case was exceptional – the Trust’s other German transactions have been at closer to 2.4% – he says that what made it possible was a government sponsored program for commercial properties. “What they do is, on maybe 60 or 70% of the mortgage, the bank gets a very low rate from the government. The least risky part of the mortgage is inexpensive. The bank averages it out, and that’s how we get to these kinds of rates,” he says.

On a continent that has seen economic turmoil in recent times, Cooper has found that despite people’s concerns there is activity in Germany, which is finding an equilibrium. As Dundee looks ahead to further international expansion, Cooper is in no hurry to explore beyond the boundaries of Germany now that his team has done the legwork to learn the market.

“We have employees in Germany, and relationships with the banks. The economy is better there than elsewhere in Europe, so we’re committed to focusing on Germany for a while.”

Meanwhile as the REIT continues to operate in every real estate market in Canada, Cooper’s outlook on the home turf is fairly positive. “It’s not too hot, not too cold,” he says. “In Canada we’re seeing slow growth, some expansion, pretty good employment numbers, demand for space. It should be okay. I think it’s stable.”

Michelle Morra-Carlisle – The Square Foot

DAVID DUBÉ

Saskatoon’s high-performing market “Our construction costs are still 20 or 30% higher for an identically-spec’d building in Vancouver or Toronto,” says Saskatoon developer

M

idmarket cities in Western Canada have economies that are out performing those in the major metro markets in the country, and that’s leading to increased demand across all asset classes.

“We’re commodity-rich in the west,” says David Dubé, President & CEO of Concorde Group Corp. “That’s driving a lot of capital spending for exploration and development.

Cities like Saskatoon, Regina and some of the smaller regional centres in Alberta and British Columbia are seeing a recalibration of real estate markets that were historically depressed for some twenty or thirty years. Some of it’s a correction in the market place, but we’ve passed that now to where it’s a demand-driven market that’s driving development.”

Concorde owns subsidiary Biz-Hub Developments,

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Canadian Real Estate Forum / WINTER 2012

which operates a 500 acre light industrial park north west of Saskatoon. The first phase is already sold out and the company is in the midst of launching the second phase.

Dubé says their success is due to strategic planning for growth over the long term. “There’s been a shortage of bigbox development land within the city,” he says. “They didn’t have a ready-for-growth strategy in the can, so city planners are now playing catch-up.”

At the same time, labour shortages are driving construction costs higher than they should be. Dubé thinks a slowdown might be beneficial for everyone. “If demand would plateau for 18 months, I think it would be a healthy prospect for the market.”

Tracey Arial – The Square Foot

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MICHAEL EMORY

Canadian REITs: experts at weathering a storm

W

hile it takes risk tolerance and a certain sense of adventure to succeed in the real estate market, the true victors are those who know when to act responsibly and conservatively. To anticipate negative change, they know it is wise to maintain a very strong balance sheet, a low debt ratio, a high interest coverage ratio and a conservative payout ratio with respect to their distributions.

The general idea is fiscal prudence, something that Michael Emory, President

and CEO of Allied Properties REIT, believes has distinguished Canadians from the pack in the wake of recent turmoil. “There really wasn’t a mainstream Canadian REIT that was in any

“There really wasn’t a mainstream Canadian REIT that was in any difficulty at all as a result of the financial crisis.”

Michael Emory, Allied Properties REIT difficulty at all as a result of the financial crisis,” he says.

Given that investors cannot anticipate exactly when the market will move

against them or how severely, he says the time to act is now while the market is positive and supportive. Emory’s advice is to pay debts down to levels that are as conservative as possible, lock in financing for as long a term as possible and at the best rates available, and have a very manageable mortgage maturity schedule going forward.

“Supply we can’t manage. Demand we can’t control,” he says. “But the one thing we can do is build the fortress balance sheet for that day when times are tough. It will insulate you from an adverse environment when it does occur and, perhaps more importantly, it will also put you in a position to take advantage of the opportunities that will invariably come along when the environment turns sour.”

Michelle Morra-Carlisle – The Square Foot

DANIEL FOURNIER

Strong market knowledge leads to opportunities

global economy is very uneven with a slow, but steady recovery in the US, while the Eurozone just fell back into recession,” says Fournier.

The second risk is the current pricing trend - return expectations are being lowered for all investments, stock market returns are volatile and fixed income products are struggling in a low interest environment. However, risks can also create opportunities. ith several major risks affecting commercial real “Smart money should be diversifying. It should start estate and institutional investments, it’s more with a strong core portfolio in a stable developed country important than ever to keep a close eye on the such as Canada. It should definitely position itself in the US evolution of the global market. “We should be prepared to to take advantage of its recovery. quickly take advantage of oppor“There are opportunities for those with It should look carefully at Europe tunities and be patient if that’s opportunities. Finally, it what required,” advises Daniel deep market knowledge, leasing clout, for should also be in emerging counFournier, President and CEO of financial strength, and the foresight to tries showing strong economic Ivanhoé Cambridge. “Above all, growth such as China and we need to have a plan that is commit to promising projects.”

Brazil.” flexible and adaptable. It is time Daniel Fournier, Fournier notes other opporto make sure that a real estate of Ivanhoé Cambridge tunities for newer and greener portfolio is well balanced, office buildings in tech-oriented depending on its investors’ markets such as Silicon Valley, and multi-family residential return expectations and risk tolerance.” properties in London and New York.

One major risk involves threats to fundamentals, rents “There are opportunities for those with deep market and occupancy rates, brought on by weak demand in knowledge, leasing clout, financial strength, and the foremarkets outside of Canada. sight to commit to promising projects.”

“Companies are pushing off investments and slow to Barbara Balfour – The Square Foot hire as they continue to rationalize their operations. The

W

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Canadian Real Estate Forum / WINTER 2012

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DAVID GEROFSKY

Innovation helps bring back head offices downtown David Gerofsky has an innovative way of dealing with future risk.

T

“It’s not that big a deal if you have an empty building, he President and COO of the Great Gulf Group rip it up and add a few storeys,” Gerofsky said. “But it is pretty espouses extensive use of new methods and technoloinnovative to do it while there are tenants in the building gies in all aspects of the company’s operations. underneath and to do it in a safe fashion. They had to “Innovation is really a big part of what we do, and it continue to operate their businesses, and really crosses all aspects,” he said.

Even Great Gulf’s business model is “It’s not that big a deal if you yet we had to put structure in to allow for the new floors.” innovative. Unlike many other real estate On the One Bloor project, which will firms, Great Gulf chooses not to have an empty building, rip it comprise 75 floors when complete, Great specialize. Its development projects up and add a few storeys.

Gulf uses a high-tech urban umbrella to include low-rise residential housing across North America, high-rise condos But it is pretty innovative to protect pedestrians, a first in Canada.

Great Gulf also deploys innovation in and office, retail and industrial properdo it while there are tenants in its development strategy. Gerofsky ties.

Great Gulf also owns and operates a the building underneath and adheres to the ideals of the word, Huburbs. Currently, Great Gulf is devel“highly-computerized company” that to do it in a safe fashion.” oping one million sq. ft. of commercial builds prefabricated walls and floors that and residential space around a new transit are assembled on site. In addition to David Gerofsky, station in Meadowvale, Ont., located in building for Great Gulf’s properties, the Great Gulf Group the Greater Toronto Area. firm supplies other major players.

Huburbs, said Gerofsky, represent the In one of its innovative projects in future of suburban core areas. They can serve people who live 2012, Great Gulf developed a new Canadian headquarters in core areas and commute to suburban jobs. The developfor Coca-Cola about the Sun Tower in Toronto. Contrary to ments can also serve traditional commuters who travel from what many might expect, Toronto Sun employees and the suburbs into the heart of the city. other tenants did not have to leave the premises during Michel Rémy – The Square Foot construction.

DAVID HENRY

Blending brick & mortar with e-Commerce With retailers like Zellers fading to black and newcomers like Nordstrom and Target fighting for market shares, there will be some clear winners and losers in the Canadian retail landscape. But although David Henry, CEO of Kimco Realty Corporation, sees some yellow flags, the long-term prognosis for Canada, he says, is still “wonderful.”

“T

here’s a little bit of capping on the brakes. We’ve had such a good run for so long, I think there are some areas that people are apprehensive about,” he says. “The currency has affected exports and manufacturing, and retail sales aren’t quite as strong as in the past. Canada is tied at the hip with the US and we’re headed towards this fiscal cliff, so there’s currency concern.”

Henry notes a strong trend in both Canada and the US for more urban vertical projects, which developers are taking advantage of.

“Urban areas are where the jobs are today, where companies are expanding and where young people want to live and work.

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Canadian Real Estate Forum / WINTER 2012

Effectively, you’ll see less suburbanization and more urbanization going on.”

As internet sales are growing substantially faster than shopping centre sales, Henry also predicts more retailers blending brick and mortar with e-commerce operations. “I think someday you’re going to see Amazon stores showcasing their Kindles the same way Apples stores have great success with this concept.

“Over time, e-commerce is not going to be the direct threat many people thought it was. There are so many basic services and goods that don’t do well – you can’t get your hair cut on the Internet.”

Barbara Balfour – The Square Foot

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BLAKE HUTCHESON

Fueling expansion abroad with a Canadian engine With more than $16 billion of real estate assets under management in Canada alone, Oxford Properties Group will continue to use their extraordinarily strong platform to divest, reinvest, and develop industrial office and retail projects.

W “There’s no denying the UK is in recession and the whole Eurozone will continue to be a rollercoaster, keeping everyone on the edge of their seat.”

Blake Hutcheson, Oxford Properties Group

hile maximizing growth acquisition and development opportunities in their own backyard, Oxford is also using their healthy portfolio as an engine for expansion in both the UK and the US. “We’ll never take Canada for granted or stop focusing on the Canadian market but this highly successful engine allows us to diversify into global markets,” says President and CEO Blake Hutcheson, who lists markets in the northeast part of the US, London and Paris as being of particular interest.

“There’s no denying the UK is in recession and the whole Eurozone will continue to be a rollercoaster, keeping everyone on the edge of their seat.

To us, London itself is a place protected from the storm. We feel as though it’s a place where if you have a long view, you will ultimately outperform other markets. We’ve got almost $2 billion invested in London and we’ll continue to monitor further opportunities.”

In Toronto, Oxford recently put forward a $3billion proposal for a downtown development project next to the Rogers Centre that would include a casino, hotel, residential, office space and a redeveloped convention centre that would land it within the top five in North America. It’s just one of many impressive projects spearheaded by Oxford in its 52year history.

Barbara Balfour – The Square Foot

Photos: Oxford Properties Group, $3-billion proposal for a downtown development project next to the Rogers Centre that would include a casino, hotel, residential, office space and a redeveloped convention centre.

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Canadian Real Estate Forum / WINTER 2012

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STUART LAZIER

It’s all part of the funds It’s not just increasing interest rates that can affect future cap rate values. Other components to consider include liquidity premiums, mortgage spread, and the return on equity, says Stuart Lazier, CEO at Fiera Properties Ltd.

“I

f interest rates move up, there won’t likely be a direct correlation with cap values going down, but that depends on what happens with bank spreads.

There will likely be pressure on banks to narrow spreads again – whether that will happen or not is another question.

“My instinct is there will be probably half or three quarters of a point of movement in interest rates. At half a point, you’d see the market staying where it is. Over that, you’d start to see some negative value.”

For the next 12 to 36 months, Fiera Properties plans to focus on core real estate across the country and acquire joint venture interests.

“Our strategy is continuing “The Calgary, to work transactions in both the retail, industrial sectors and on Edmonton, and the residential side as well. We’ve Vancouver done a lot of off-market transactriangle will be tions in the last year.”

Lazier doesn’t believe the very important to capital growth of the past five years will continue. “We will be our business, and looking for assets we can acquire may provide some with an ability to enhance value over time, through increasing interesting returns rents and controlling capital to investors.” expenditures.

“For a relatively new fund Stuart Lazier, that we’re putting together, we Fiera Properties Ltd. have a target of $500 million of equity to be deployed over the next five years with $750$850 million of assets. We have to live within certain constraints in our investment policies.”

Lazier also acknowledges the western part of Canada to be an important area of growth in the country. “The Calgary, Edmonton, and Vancouver triangle will be very important to our business, and may provide some interesting returns to investors.”

Barbara Balfour – The Square Foot

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Canadian Real Estate Forum / WINTER 2012

JON LOVE

Canada’s real estate thriving amid political anxiety For a country known for its relative stability amid global economic turmoil, Canada has its own reasons for political anxiety. The west is in ongoing debates about building a pipeline from Alberta to Nebraska, and about the environmental impact of the oilsands.

Combine these issues with a federal battle for the right to build a bridge from Windsor to Detroit, Québec nationalism and its impact on resource extraction and the economy, and Ontario’s leadership challenges… One might say it’s hardly a recipe for investor confidence.

“T

”The many issues Canada is facing could potentially create a background of uncertainty for business, which is not helpful,” says Jon Love, Managing Partner with Kingsett Capital.

Yet he points out that Canadian real estate investors must be doing everything right. Why aren’t they fretting?

Because the market is in remarkably good shape amid the uncertainty.

“My view is that the markets in Canada are generally well balanced,” Love says. “Owners are well capitalized and responsible. New supply is measured. And that has led to a very solid background for real estate investment.”

The good news story for investors, then, is that in a climate of disorder it pays to have your business in order.

“At the end of the day, the most important part of real estate investment is the operator fundamentals,” Love says, “making sure we’ve got markets in relative supplydemand balance, and that we are not over or under investing in any particular asset class or region in the country. I do think those fundamentals are, to a large extent, what we are seeing.”

Michelle Morra-Carlisle – The Square Foot

B ARMIN MARTENS

Heading south The head of one of Canada’s largest REITs is predicting finance markets will remain receptive to commercial real estate investment in 2013.

ut Armin Martens, President and CEO of Artis REIT, also warns that potential accretive acquisitions will be more difficult to find.

“The capital markets, the equity markets and the debt markets will be wide open for opportunities again next year,” said Martens.

Artis REIT is hoping to capitalize on the positive climate by investing more in the Greater Toronto Area. The Winnipeg-based REIT’s portfolio is 80% weighted in Canada with 70% of properties in Western Canada and 20% in the US. Approximately 10% of the portfolio comprises GTA properties. In terms of asset classes, 52% of the properties consist of office space while retail and industrial account for 25% and 22%, respectively.

But, due to compressed cap rates, it

could take a while to identify potential acquisitions let alone complete transactions.

“Cap rates have come down in all asset classes, so it’s a shell game for investors to chase cap rates right now while making these accretive acquisitions,” said Martens. “But as always, you do what you have to do.”

Acquisitions became more challenging in the second half of this year after cap rates compressed considerably in the first half. The gap between buyer and vendor expectations also factored into the situation.

“It seemed, too, that realistic valuations peaked in the third quarter,” he said. “It became more challenging to find them. In that sense, it made it more difficult to find accretive acquisitions in Canada than in the US.” Michel Rémy – The Square Foot

BRIAN McCAULEY

The thriving multi-family market Canada’s multi-family market will continue to outperform other commercial real estate asset classes in 2013, says Concert Properties President and COO Brian McCauley.

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old building without the need for a significant capital expenhis asset class is just better than so many diture on upgrades in the future. others in terms of a steady, safe return,” said For a pension-fund-owned developer whose investors McCauley. “That’s what investors are looking are looking for long-term income, for, and there’s just so much demand for these apartment products. People “The demand for acquiring existing such a strategy is “a great match.”

Going forward, he expects the are (investing) for long-term holding apartment buildings is still so very condo market to pose challenges to purposes.”

Changes in lending rules and strong that cap rates will remain low. the multi-family sector, but believes CMHC practices and a softening of There’s just a lot of money chasing that the hurdles can be overcome.

The strong growth of the condo incentives available to first-time too little old product, which is market has increased land values and home buyers mean that renters will stay in the rental market longer – certainly keeping the pricing very construction, and condo buyers comprise a high percentage of factors which bode well for multifamily developers and investors high for older apartment buildings.” investors who are acquiring for rental purposes. going forward.

Brian McCauley, Concert Properties However, McCauley expects “The demand for acquiring such investment condos to work their way out of the rental existing apartment buildings is still so very strong that cap market in the near future. He believes that, like condo buildrates will remain low,” said McCauley, “There’s just a lot of ings, new rental buildings must offer similar amenities as money chasing too little old product, which is certainly condos, contain mixed-use properties and be close to public keeping the pricing very high for older apartment buildtransit lines. ings.”

LEED-Gold certification is not a top priority among renters.

While many investors prefer existing product, Concert “I would say it’s a feel-good item, but it’s not necessarily Properties, which partners with OMERS, does not usually something people are willing to pay for,” said McCauley. buy old buildings, because it realized that, with cap rates so Michel Rémy – The Square Foot low, a new project offers the same return as a 30-to-40-year-

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Canadian Real Estate Forum / WINTER 2012

THOMAS SCHWARTZ

Rental apartments best-performing asset class going forward Trading at record low cap rates means stability and income stream predictability

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hen Canadian Apartment Properties Real Estate Investment Trust (CAPREIT) finalized their purchase of the 980-apartment Olympic Village in Montreal on November 1, the company achieved their goal to become more geographically-diversified across Canada, while ensuring stable, predictable rental income over the long-term.

“It’s got an extremely stable group of tenants who like living there for a very strong income stream,” says President and CEO Thomas Schwartz. “There’s always some growth because we’re a very good operator and we feel we can add value through CAPREIT’s style of operating.”

Schwartz says that CAPREIT’s experiences in Montreal are matched in apartment investments in all the major “Like all propermarkets across the country. High occupancies—the rate is 98.2% ties that are old, in Montreal—and extremely low they need capital interest rates help. They also receive CMHC financing, an to bring them up additional benefit that other to our standards asset classes don’t enjoy. “We’re getting ten-year money at 2.8% of quality and life and lower,” says Schwartz. safety,” “That’s significantly lower than the mortgage rates for any other Thomas Schwartz, asset class, so again that’s CAPREIT another strong driver for apartments.”

Schwartz says he worries that interest rates might rise, and new competition from the condominium rental market will hurt.

CAPREIT plans to invest in Olympic Village improvement. “Like all properties that are old, they need capital to bring them up to our standards of quality and life safety,” says Schwartz. “When we examined that property, we certainly know what’s required and we’re prepared to do it.”

Tracey Arial – The Square Foot

Canadian Real Estate Forum / WINTER 2012

51

DORI SEGAL

Doing your homework to get the deal done Dori Segal says his advice has not always resonated with others over the years, but he still takes it to heart.

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f you want to manage risk and guard against future downturns or disasters, you need to find good, welllocated assets with decent returns.

“There are always assets like this around in this climate,” said Segal, President and CEO of First Capital Realty.”Make sure that you are doing your homework very well. For example: the demographics.”

It’s as simple as that.

“It seems very complicated, but it’s not,” he said.

First Capital tries to get good anchor tenants on the

corners of its retail centres. In addition to a grocery store, it aims to build a nice mix of tenants that could include a barbershop, local sports bar, medical services, personal services, coffee shop and “a bank, of course.”

Many First Capital properties are located adjacent to medical facilities that help to spur demand for services available in the retail sector.

While some investors prefer to operate regionally, First Capital adopts a national strategy that does not weight assets too heavily in one geographical area.

Segal considers himself neither a bold investor nor a conservative investor. Actually, there are times, he believes, when you can be both.

“If you’re just sitting there and conservative and afraid to take bets here and there, then you won’t get much and you won’t grow your business over time,” he said. “It’s very rare – very rare – when you have to run at full speed or come to a full stop.”

Most of the time, there are risks out there, and there are opportunities.

“You’ve got to uncover opportunities and get the deal done in a way that reduces your risk,” he said.

Michel Rémy – The Square Foot

SANDY SHINDLEMAN

Opportunities stem from economic powerhouses, immigrant creativity and long-term services Many of the assets in our market and that have traded now, have potential to add more density, as planners are more open to that concept.

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some of the older cities – Winnipeg would be one of id-size markets in the west are also them – average house prices don’t mean a heck of lot growing briskly, says Sandy Shindleman, because we have a segment of that market that has President of Shindico Group, a commervery old houses but what people get for new houses cial real estate investor based in Winnipeg. “Economic is certainly comparable with what drivers are natural resources, agricul“Development is always they get in Calgary, Edmonton or ture, government, we still have some manufacturing, and also the largely a local business. the other big six markets.”

“Development is always largely positive immigration we’re getting.

Everyone needs local a local business,” says Shindleman.

Immigrants are coming with money and ideas. It doesn’t take them long health for development, “Everyone needs local health for development, no matter who you to start small businesses.” no matter who you are, are, no matter where. The attitude Mid-size markets can offer that’s present among local develrental growth, intensity growth or no matter where. opers who are stepping up, both, depending on the investment.

Sandy Shindleman. acquiring assets and redeveloping “I think that we’re going to see Shindico Group assets on the strength of what positive growth all around,” says people are doing elsewhere is posiShindleman. “There are so many tive. They’ve got the right idea.” different asset classes that don’t in fact compete with Tracey Arial – The Square Foot each other. In some of the places with older stock –

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Canadian Real Estate Forum / WINTER 2012

JIM TADESON

Lenders want experience and proven success “Lenders want to work with people they trust,” says Jim Tadeson, Founding Partner in Carttera Private Equities Inc.

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etting the right group of partners together for a project can make all the difference to its success. Those who demonstrate expertise in specific types of projects or strong local knowledge are sought after by lenders, land-owners and commercial partners alike.

“Joint-ventures can be fraught with peril, but if you have the right people together bringing complimentary skill sets that’s the best outcome,” says Tadeson. “It can often be a happy relationship. Both parties need to have reasonable amounts of skin in the game, a reasonable amount of at-risk money. The skill sets need to be complimentary.”

Partners will seek out people they trust for new projects and lenders are

“Joint-ventures can be fraught with peril, but if you have the right people together bringing complimentary skill sets that’s the best outcome.”

Jim Tadeson, Carttera Private Equities Inc. setting stricter criteria and reducing the number of borrowers with whom they’ll work.

“They want to work with people that they’ve worked with before. They want a bigger balance sheet out of every borrower. In commercial projects, they want a higher level of pre-leasing.

If it’s a condo project, they want a higher level of pre-sales. It’s tougher to get construction financing, which is going to really temper the pace of development and take a lot of undercapitalized guys out of the market. It will be very difficult for them to get financed or low-rates. It’s a relatively new phenomenon. Credit is not available as it has been.”

Tracey Arial – The Square Foot

STEPHEN TAYLOR

New Frontiers

A

Winnipeg and Victoria, with great success. fter more than 30 years of real estate ownership, The key is that these cities are still large enough to have investment and management, Morguard a critical mass and a diverse economic base, yet just small Investments Ltd. is no stranger to this sector’s everenough to escape the attention of some competing changing tides. In the ongoing quest to find quality product investors. “These may not be cities that register for some at prices that make sense, here are what Morguard’s President of the large international investors as being the dominant and COO Stephen Taylor considers as timely opportunities cities in Canada,” Taylor says. for 2013 and beyond: • Go south. With a portfolio that • Buy the best. Where Morguard’s “For income-producing properties, is currently 90% Canadian, own investors are going after existing income-producing propwe are prepared to pay very aggressive Morguard plans to balance that by focusing two thirds of its growth in erties as opposed to new developprices but taking advantage of the the US in the near term. While ment, they are focusing on the highest quality properties: “We low cost long term financing that is Taylor admits there is more risk in the US economy than in Canada, are prepared to pay very aggresreadily available right now.” the company also sees a significant sive prices but taking advantage upside – better pricing of some of the low cost long term Stephen Taylor, assets and much higher availability financing that is readily available Morguard Investments Ltd. of properties for purchase. right now,” Taylor says.

• Tap the untapped. The greatest “The final element is that as we gain expertise in the US challenge for real estate investors at this time is the high market, we’ll bring it back to the 3rd party clients that we degree of competition. One way to sidestep the competiservice and offer them opportunities to invest alongside us,” tion is to explore mid markets. While always investing in he says.

Canada’s largest cities, Morguard has also been an active Michelle Morra-Carlisle – The Square Foot player in ‘second-tier’ cities such as Ottawa, Edmonton,

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Canadian Real Estate Forum / WINTER 2012

Bentall Kennedy Ranks 1st in Sustainability ( 2 years in a row! )

Bentall Kennedy is ranked #1 in the Diversified Commercial Real Estate category in the Americas by the 2012 Global Real Estate Sustainability Benchmark Research Report. The survey findings represent 450 participants, 36,000 properties, and over $1.3 trillion in assets. But for us it represents a win / win for our clients and the communities in which we live and work: Clients Win

Communities Win

• Attracting the best tenants • Delivering extraordinary tenant services • Achieving higher and more sustainable value for our clients’ assets

• Creating healthier work places • Improving air quality due to lower CO2 emissions • Consuming fewer natural resources in high-efficiency buildings

GARY WHITELAW

Increased emphasis on productivity, sustainability and efficiency in coming years “Real estate merely houses the world around us and we need to be responsive to global changes,” says Bentall Kennedy CEO

www.bentallkennedy.com

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lobal uncertainty, what’s happening in new modern forms of distribution. People are Europe and the slowdown in Asia is buying homes in downtown cores to avoid long affecting real estate demand in Canada commutes. Even the new trend towards ESG – but it’s still solid, says Gary Whitelaw. environmental, social governance and sustain“Businesses are still ability – reflects concern “The most sustainable and for productivity. making decisions, which is very good, unlike in “The most sustainefficient buildings have lower 2009. Most of the new able and efficient buildoperating costs; they have ings have lower development opportunities that we’re seeing are higher tenant satisfaction, operating costs; they the result of a tremenhave higher tenant satisdous focus by our users higher retention and therefore faction, higher retention on productivity, whether and therefore ultimately ultimately higher value.” that’s the consolidation higher value,” says Gary Whitelaw, Bentall Kennedy of multiple office locaWhitelaw. “Canada has tions into a new building done well on that global or new premises for operational synergies and effi- dimension but I think we need to make it a ciencies or whether its retailers looking for new priority. We will see greater differentiation over more flexible formats and sizes that accommodate the next decade between corporations that recoga greater emphasis on online retailing” nize that this has become a priority and those that Productivity is driving every real estate sector become functionally obsolete because they in Canada. Large stores are shrinking and moving to haven’t.” on-line retailing. Industrial clients are focussing on Tracey Arial – The Square Foot Canadian Real Estate Forum / WINTER 2012

55

Capital & Debt Although pension funds have allocated more resources for property acquisition, those allocations often can’t be filled.

COLIN JOHNSTON

A little lower now…

Capitalization rates should continue to compress in 2013, says a leading real estate appraiser participating in the 2012 Toronto Real Estate Forum.

DOUG MCGREGOR

How will real estate fare in the new Obama era?

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ere in Canada, the real estate market depends on the fundamentals of GDP growth, the offshoot of which is job growth. Job growth, in turn, drives office occupancy, retail sales and interest rates. Can the newly reelected US President Obama ensure GDP growth south of the border, which would drive GDP growth in Canada?

Another factor at play in the winter of 2012 is the “fiscal cliff,” which causes more volatility the more people focus on it. “If the President could somehow solve the fiscal cliff issue through tax incentives or some other mechanism for growth in the US, that would be the favourable outcome,” says Doug McGregor, Chairman and CEO of RBC Capital Markets Real Estate Group.

Here at home, real estate pricing has come a long way in the last three years thanks to a combination of good operating environment and good leasing environment. “I think the valuations are sustainable as long

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Canadian Real Estate Forum / WINTER 2012

as you have a good leasing environment and low interest rates,” McGregor says.

Real estate forecasting is limited without knowing the future direction of the economy. While Canadian real estate investors keep a close eye on the US, McGregor recommends a measure of caution and common sense, such as selling off hard-to-lease office buildings or other overvalued assets and putting the money into better markets.

At a time when the corporate world’s balance sheets are in very good shape, the question is whether that trend will continue for 2013.

Though McGregor admits to being more optimistic than perhaps the average investor, “We’re in a period now where issues surrounding public policy have introduced a lot of uncertainty,” he says. “How they’re dealt with will largely determine how we do over the next six months. I don’t believe it’s a time to go all in.”

Michelle Morra-Carlisle– The Square Foot

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olin Johnston, President, Research, Valuation & Advisory for Altus Group, says the average cap rate for the overall Canadian market was around 5.4% in 2007, but the 10-year bond rate was 4.5%.

Today, the average cap rate is 5.1%, but the 10-year bond rate is 1.8%. In other words, the rate spread has increased more than 300 basis points.

“That indicates to me there’s still a cushion,” said Johnston, “Cap rates can still go lower.”

How low can they go? Time will tell.

Real estate continues to outperform other investment sectors. Bond and equity returns are “really sluggish” and real estate offers strong fundamentals like low vacancy and rental growth, particularly in the office, retail and multiresidential sectors. Industrial is about the only asset class that does not offer much in terms of future rent increases.

“Will there continue to be good availability of financing? The answer is yes,” said Johnston. “There’s a lot of capital looking for a home, and real estate offers a lot of attractive returns.”

While many investors are keeping a watchful eye on interest rates, he does not expect them to “go up materially” in 2013. But, he adds, there is still a lack of clarity on where new economic trends are heading because of uncertainty in the US and Europe.

Since major Canadian markets are now performing fairly well, smaller markets like Winnipeg, Regina, Saskatoon, and Halifax, with its new major federal shipbuilding contract, will pick up “just by default.”

Investors in those markets can expect solid, albeit unspectacular returns.

“If you’re looking for product, I think you’re going to have to be more selective in your choice of opportunities,” Johnston concluded.

Michel Rémy – The Square Foot

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STEPHEN SENDER

Steady as she goes Canada’s real estate market has emerged from a credit crisis in 2009 with outstanding returns thanks to declining interest rates in the bond markets and solid economic fundamentals in this country.

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KAREN WEAVER

Capital available Large amounts of capital will continue to be available in 2013, says Karen Weaver, Executive Vice President and CFO, First Capital Realty.

T

he large numbers of bids being made for properties demonstrate that ample capital is still available.

She does not foresee a significant upward change in interest rates. Barring an unexpected slowdown in the world economy, 2013 is in position to be like 2012.

“I’ve been through a lot of cycles and the cycle right now has people feeling very cautious,” said Weaver.

First capital is still focused on having only nine-year and 10-year debt maturation periods. Weaver does not expect the real estate industry’s switch to International Financial Reporting Standards (IFRS) to have a significant effect on investment trends.

“IFRS is just another data point, I think, for a company and for a market,” she said. “I don’t think it’s the most important thing or the least important thing. It’s just one of a couple of dozen things that matter.”

Weaver predicts debt packages will rely on a very good internal focus on value. If a management team does not have a hands-down understanding of its business, “that’s just the wrong place to be.”

“I don’t think you should rely on external appraisers in your valuations,” she said. “These are just a provider of benchmarks. But at the end of the day, everybody has their own view on real estate and value and how they address cash flow and how they increase cash flow. That’s why I think the sign of a best practice is to do your valuations internally.”

Michel Rémy – The Square Foot

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Canadian Real Estate Forum / WINTER 2012

ith an eye on the near future, investors are asking themselves: What if the situation doesn’t change? And more importantly, What if it

does?

From the viewpoint of Stephen Sender, Scotiabank Global Banking and Markets’ Managing Director and Industry Head, Real Estate, the underlying question is “History seldom whether, if things don’t change, investors will find repeats itself but it opportunities to earn usually rhymes. There adequate returns in the real estate sector. On the may be similarities in other hand if the situation the future but it rarely changes, investors must be ready for that as well. For plays out as it has in example, Sender says, “If the past. Life is very interest rates are rising because the economy is complicated and getting more traction and making predictions is there’s an elevated expectation of inflation, that very hard to do.” could eventually translate Stephen Sender, into rental growth. If bond Scotiabank Global Banking market interest rates rise and Markets somewhat, there will be a period of capital vs. fundamental dislocation.”

Which of these scenarios will most likely arise only time will tell. Is there reason for concern? That depends on how they play out. According to Sender, as the sector universally faces what some are calling “financial repression” – the low numbers phenomenon in terms of interest rates and capitalization rates – more important than where those numbers are headed, is how quickly they might change.

“Regardless of whether the cap rates move up or down, provided it happens in an orderly fashion and fairly gradually, markets will adjust intelligently,” Sender says “It’s when things happen suddenly that you have an issue.”

Michelle Morra-Carlisle – The Square Foot

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Development The quest for proximity has returned to the urban landscape. Soaring energy prices have altered the economics of the commute, reversing the postwar flight to the suburbs, as young adults migrate to increasingly car-free inner cities.

SAL IACONO

Renewal, re-investment and expansion mean strong ROI Mixed-use joint ventures between land-owners, developers, retailers and residential owners aim to create “live, work, learn and play” neighbourhoods.

M

ultiphase developments now underway in Anjou, Ottawa, Markham, Montreal, Pointe Claire, St. Bruno and Toronto will revive and renew urban neighbourhoods while ensuring long-term return-on-investment for the Ontario Teachers’ Fund.

“We currently have developing projects underway which, when concluded, will represent a total investment of close to two billion dollars,” says Sal Iacono, Senior Vice President of Development and Eastern Portfolio Manager of The Cadillac Fairview Corporation Limited. “It puts us among the most active real estate companies in North America. We are fortunate to have an owner, the Ontario Teachers’ Pension Fund, which has a long-term view of these kinds of assets. They are stable, inflation-protected and able to generate cash – once well-established – that they can count on to continue to pay monthly pension cheques.”

Cadillac Fairview has teamed up with land-owners, retailers, commercial businesses, condominium operators and marketers to renew and expand various properties across the country. In the process, they have been discovering new ways to meet the structural, administrative, legal and operational demands of disparate owners all living under one roof.

“Professionals involved in those kinds of projects are just now starting to hone their design skills in order to ensure that building systems and life-fire-safety systems all get harmonized in the proper way,” says Iacono. “It’s not an easy technical task and makes for interesting ownership dynamics.”

Tracey Arial – The Square Foot

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Canadian Real Estate Forum / WINTER 2012

THE SKY IS BARELY THE LIMIT We’ve had a growth spurt – for the past 22 years. As our reach has grown, from BC to Alberta and Ontario, so too has our grasp. As limitless as our growth opportunities may be, we continue to hold true to our corporate vision of excellence.

www.ConcertProperties.com

PAUL BEDFORD

New cities for the new city dweller

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hen Canada turns 150 in 2017, its population will reach 36 million. Large numbers can be great or terrible news depending on the quality of urban development. As the late urban planning activist Jane Jacobs once said, “If Canada did not have strong and prosperous city regions, it would be a third world country.”

Cities are changing, some say for the better. Offices are moving their headquarters from the suburbs to downtown. Businesses are seeking to attract young workers who prefer to live downtown and avoid highway gridlock.

Suburbia is losing out in favour of a

carless and better quality of life.

Will “car-free” really fly? It already is if you consider that up to half of the units sold in downtown Toronto are purchased without parking and the majority of residents in new downtown neighbourhoods do not own car.

Communities are further attracting this new breed of city-dweller with retail

“City Building is not about political ideology or just a private sector exercise.

It is about the economic future health and prosperity of our country.”

Paul Bedford, Paul Bedford & Associates establishments that serve their needs.

“We’re getting back to what originated in the 1976 Central Area Plan for Toronto that promoted living downtown, mixed use, mixed income, transit focus and cancellation of expressways,” says

Paul Bedford, Principal of Paul Bedford & Associates. The barrier to reaching that ideal? “A total lack of sustainable funding to keep pace with growth.” Bedford believes that Canada’s urban planning priorities should include, among others: • A Forum of elected members from the Federal, Provincial and Municipal governments on the development of new sustainable, long-term funding and legislative tools for urban resiliency and success; • New federal and provincial funding and stimulus programs; • Region-wide public support for new transit funding tools; and • Dedicated funding for transit through such tools as a regional sales tax levy, regional non-residential parking levy, regional gas tax levy, regional road pricing or other revenue stream options.

“City Building is not about political ideology or just a private sector exercise,” Bedford says. “It is about the economic future health and prosperity of our country.”

Michelle Morra-Carlisle – The Square Foot

DANIEL BYRNE

Harnessing the power of urbanization in your neighbourhood

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iveWorkLearnPlay Vice President, Daniel Byrne has worked on both Neighbourhood development today is largely about rethinking the sides of the public private divide, on large-scale projects with private “anchors” that drive and influence the flow of people. College campuses, for developers as well as with cities and civic clients. Having helped shape example, are a major anchor in the development of urban neighbourhoods. and manage neighbourhood growth, he says, “We’re big believers that if done So are public markets that draw not only great numbers of visitors but correctly, building great neighbourhoods can be very successful business.” people of varying demographics.

One challenge for urban communities is Byrne believes that a successful “Private developers working entirely on community is one that is built collaborato attract employment. Communities and developers can better appeal to the right their own can be very challenged, and tively. “Private developers working entirely office houses, Byrne says, by creating retail on their own can be very challenged, and cities, if not doing it in concert with the cities, if not doing it in concert with the space such as dining, shopping, and other amenities that offer the quality urban development community, don’t do a very development community, don’t do a very “street level” experience employees are good job,” he says. “The development good job. The development community community and cities have to work looking for. Cities and developers, he says, must ensure that the physical environment together.” and cities have to work together.” is conducive to successful retail space.

Finally, he stresses that clarity is very Daniel Byrne, LiveWorkLearnPlay Also, presentation matters. Once important to tenants – and simply good those retail establishments are in place, in business. “In neighbourhoods where cities order to fulfill their role they must be highly visible and not tucked away are trying to promote the intensification of office space,” he says, “make sure discreetly. “Retailers don’t benefit from subtlety,” Byrne says. “Storefronts you have a very clear, unambiguous process to bring your project forward.” need to attract passing traffic by being bold and assertive.”

Michelle Morra-Carlisle – The Square Foot

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Canadian Real Estate Forum / WINTER 2012

JACK DIAMOND

Attracting families crucial to urban renewal The growth of Canada’s inner cities is positive, says Jack Diamond. Now we need more diversity.

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he population of Canadian cities has been increasing rapidly for about a decade now. The trend reverses the previous trend towards decentralised communities within an ever-widening geographic base to such an extent that Jack Diamond, principle at Diamond Schmitt Architects Inc., believes it’s a revolution.

On one hand he says, it is extremely positive. “The inner city is really where the financial core is, where major decisions are made, and where an interaction between research, finance, innovation and venture capital occurs.

Close proximity is a very important component in the success of a city. With the decentralization, we were beginning to lose the synergy you get from proximity.”

On the other hand, most of the influx is made up of transient young people and empty nesters. Families, inexpensive space for innovation, and stable residents willing to engage in community development are in short supply.

“With the growth of the condominium market and the conversion of warehouses to showrooms at the higher end to condominiums and lofts and such, we’re losing incubator space and a low-rent component,” says Diamond. “So the question we face is how do we redress that balance? To me, that’s the essential question to market to a long-term much more stable, far healthier and diverse income and age group so that it’s a really successful city.”

Tracey Arial – The Square Foot Canadian Real Estate Forum / WINTER 2012

63

Investment & Leasing The industry continues to be swept along by the strength of its success. Real estate returns have been so successful and reliable that they have outpaced money markets. Much of the institutional demand for yields hasn’t been tapped into yet. Many private retirement funds need to up their returns in order to pay the benefits and real estate is the asset of choice.

PIERRE BERGEVIN

A perfect storm for Canadian real estate Pierre Bergevin sees similarities between Hurricane Sandy and the current real estate market. Except that what’s happening in the market, he says, is good news.

“T

he demand side of the equation Also coming soon, according to Bergevin: looks great,” says the President construction of new condo and multi-family rental and CEO of Cushman & Wakefield stock after several decades of inactivity. “It pretty Ltd. “Turn that around to how can you generate much stopped in 1971,” he says, “but professionals additional value out of in that sector are saying REITs, and you see three “We have never gone into a they can virtually do it components: ability to crisis as strong as we did and now.Of” course investors raise rents as leases are over, ability to buy accrecome out even stronger.” must continue to be tively, and ability to refimindful of risk – Pierre Bergevin, nance existing debt at a currently in the form of Cushman & Wakefield Ltd. lower rate. Much like the Canadian consumer debt, storm that just hit us, it’s and interest rates which the perfect confluence… for a robust market.”

Bergevin says are “kind of a wild card” to which Along with that “perfect storm” Bergevin sees the market is highly sensitive. Overall, though, new trends on the horizon. One is a move among from his perspective the real estate environment is large corporations to densify how they use their strong. space, not necessarily by having more people in “Looking at the health of our markets from an the same space but by having people work differoperational standpoint we are so well poised,” he ently or remotely. “Buildings that are suited to that says. “We have never gone into a crisis as strong as type of use and accommodation will be more we did and come out even stronger.” desirable to those companies,” he says.

Michelle Morra-Carlisle – The Square Foot

SHEILA BOTTING

How commercial real estate can help transform business The commercial real estate marketplace continues to adapt to changes in the Canadian economy. While the past decade has been generous to commercial real estate in terms of growth opportunities, Sheila Botting, Senior Practice Partner, Client Cabinet, and National Leader, Deloitte Real Estate says gaps in Canadian productivity are becoming apparent – gaps that will inevitably impact real estate performance.

O

ver the past 30 years, a major productivity gap has emerged between Canada and the United States. A recent study by Deloitte indicates that Canada’s productivity, in terms of output per hour, is currently some 23% behind the US due to competitive intensity, low risk tolerance, poor trade activity, weak investment and other factors.

Canadian productivity growth in financial services – the major users and drivers for office space – has lagged behind the US, UK and Australia by a significant margin. So has manufacturing, a key driver of Canada’s industrial real estate markets. Retail, for one, is performing well. “High competitive intensity drives higher level of growth innovation and investment and we’ve witnessed a significant transformation within our retail industry,” Botting says.

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Canadian Real Estate Forum / WINTER 2012

Botting feels that commercial real estate can provide a major catalyst for business to transform to the new environment and significantly enhance productivity. For example, for an employer in the office sector, relocating to a new office building is an opportunity to significantly transform the workplace and invest in new information, communications and technology.

“Retailers will need to adjust to the evolving technology world and mobile consumer that is bombarded by physical store, online and mobile purchase decisions,” she says. “Emerging competitors like Amazon and Google will force retailers and property owners to transform their operations to compete effectively.”

Michelle Morra-Carlisle – The Square Foot

MICHAL KUZMICKI

Strategic objectives shaping today’s tight market

W

ith the Bank of Canada’s hand still holding the interest rate end of the financial seesaw down to the ground, private vendors remain up in the air, reluctant to sell their property, because the stiff capital gains levies that they would incur outweigh the return that they would receive on the proceeds.

“To a degree, we’re competing with lenders,” observed Michal Kuzmicki.

“When you have an option to refinance versus paying taxes, that’s an option which many people will consider.”

“Essentially, strong demand for high-quality real estate investment is almost universal in any market in Canada,” reported Brookfield Financial Real Estate Group’s Managing Director.

“We’re seeing multiple offers on virtually everything.”

“Where you do find some differentiation is in secondary quality assets, where

“Many pension funds view infrastructure investment as real estate, because the two are closely aligned.”

Michal Kuzmicki, Brookfield Financial Real Estate the owners expect the same type of pricing,” he acknowledged. “Witnessing low capital ratios on higher quality assets, matching investors’ expectations with owners’ becomes more challenging.”

Starved of sufficient top-quality assets in which to invest, Kuzmicki said that a good deal of investors are now diverting their money into infrastructure.

“Many pension funds view infrastructure investment as real estate, because the two are closely aligned,” he explained. “It’s certainly a related asset class whose strong long-term yield and relatively low risk profile is drawing more and more interest all the time.”

Kuzmicki discerned that most movement of assets today results from investors aligning their holdings more closely with their particular strategic objectives.

“They’re selectively disposing of assets that they believe no longer satisfy their requirements.”

“Certain investors see that it’s time to move on because there is no more upside potential to the value of the property,” he continued. “That firm crystallizes its value while a pension fund that is looking for long-term yield gains a perfect asset to hold on to – so it satisfies both parties’ strategic objectives.”

Robert Frank – The Square Foot

BRETT MILLER

2013 prospects: cautious optimism, despite the risks Commercial real estate is continuing to benefit from an aging Canadian population, as baby boomers increasingly need cash flow more than they do asset growth.

“I

t’s part of a diversification play,” said Brett Miller.

“The markets have really been up and down, and real estate is perfect for that.”

“We are cautiously optimistic that 2013 will be very similar to the previous year,” he predicted.

“Pension fund allocations are increasing,” added the Jones, Lang LaSalle Canada President, “but because it’s so competitive, they essentially inform their boards that they can’t place the capital that they have been asked to deploy, and voluntarily reduce their allocation.”

He conjectured that new construction techniques might alter how the most prestigious facilities are categorized.

“Now that highly efficient buildings, more responsive to clients’ needs are available,” Miller mused, “have older AAA towers, built during the late 1980s or 1990s – which have hitherto commanded the greatest prestige – become vintage?”

He also anticipates that land prices will decline, as the condo market cools off a bit.

The billion-dollar question, though, is what will happen when the Bank of Canada leavens its unprecedentedly low rates.

“Is the inevitable rise in interest already priced in, or are we going to have some kind of collapse or correction if rates rise by 100 basis points?” he asked.

“Some sectors like REITs are much more nimble and keep pace with market dynamics much faster than pension fund owners and lastly private owners,” Miller noted.

Robert Frank – The Square Foot Canadian Real Estate Forum / WINTER 2012

65

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JOHN O’BRYAN

No third way out of government fiscal mess “The Ontario government’s deficit is quite large and – if you don’t tackle that debt – it could easily mushroom out of control,” warned John O’Bryan.

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Canadian Real Estate Forum / WINTER 2012

KITCHENER - WATERLOO

GUELPH

TORONTO

MARKHAM

MONTRÉAL

ow do you get out of boom generation begins to retire during this mess?” CBRE’s Vice the next two decades.”

Chairman asked rhetori“These entail very difficult political cally. “The answer is that you climb out decisions,” O’Bryan acknowledged, of it very slowly. You either have to raise “but deferral is not a great strategy.” taxes or spend less. There is no third He said that commercial real estate’s solution.” standout performance has attracted “Unlike in the 1990s, when the considerable investment “because it is Canadian economy was able to grow its one of the only types of asset classes that way out, growth won’t bail us out this has delivered consistent, higher than time,” he predicted. money market “Slow growth is “Unlike in the 1990s, when the returns.” actually part of the He pointed out Canadian economy was able solution to the debt that some econoto grow its way out, growth mists see significant problem.”

He noted that won’t bail us out this time. risks on the horizon. there was no debate “Economists John O’Bryan, CBRE during either the are quite split on last Ontario or whether Canada’s federal elections about the looming housing market is sustainable,” he said. debt crisis.

“Some will tell you that you’re in a “Another issue is whether cyclical but that there will be no crash Canadian pensions will remain sustain- and burn. Others are more bearish and able,” he observed. “A low growth envi- believe that the whole residential runronment is going to make it very up is unsustainable, and that we will see difficult to sustain existing pension some very significant corrections.” levels for current retires as the baby Robert Frank – The Square Foot

Fo F orecasting ng next season’s bigg gestt trends What are the best bets for o investment and development in 2013?

7KH UHDO HVWDWH LQGXVWU \Ĺ‚V PRVW LQÄ XHQWLDO OHDGHUV SUHGLFW WKH ELJJHVW WUHQGV LQ 3Z&Ĺ‚V DQQXDO IRUHFDVW UHSRUW Emer merrgging Trends in Real Estate 2013.

To get your copy, visit: www.pwc.com/ca/emergingtrends For more inffo ormation: &KULV 3RWWHU 3DUWQHU 416 218 1468 FKULV M SRWWHU#FD SZF FRP Š 2012 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved. 2936-12-1112

TONY QUATTRIN

Cleaning up In the next year, active players in the real estate market will be paring down, realigning and cleaning up their portfolios, adopting an approach Tony Quattrin calls “cautiously aggressive.�

T

he Executive Vice President and Managing Director of CBRE predicts we’ll see plenty of selling among real estate owners, particularly among foreign investors. “We’re able to provide profits to investors they can use to shore up appraisal losses in other markets, particularly in Europe,� says Quattrin, who notes they may even reinvest in Canada if they can find the right opportunity. However, availability of these opportunities should be taken into consideration by all investor classes, whether REITs, syndicates or private owners. “In my opinion they’ll buy commercial real estate where and when it’s available. They all want to buy the downtown office building in a major market at a good cap rate, and

when they can’t get that, they’ll move from there. “I think real estate still looks pretty good for domestic investors and I do think the market is at or nearing some peak for values, but that will continue on into next year.�

From his own perspective as a world traveler, Quattrin thinks Canada is seen as a desirable market for international investors. “Foreign investors will find Canada compelling but expensive, so they’ll be here and active, but they may not execute as often as they would like. If you’re a foreign investor, typically your palate is global, so Canada will appear more expensive than the US in terms of cap rate.�

Barbara Balfour – The Square Foot Canadian Real Estate Forum / WINTER 2012

67

“T

GEORGE CARRAS

The shift hits the fan in the housing market The impact of intensification policies put in place by the Ontario government in 2005 are now becoming increasingly visible.

Monthly High Rise Price/SF Index & Unit Size Index GREATER TORONTO AREA – JAN. 2004 TO OCT. 2012 Source: RealNet Canada Inc. (www.realnet.ca)

68

Canadian Real Estate Forum / WINTER 2012

he Growth Plan for the GTA is intensification which means taking a grow up not out approach to development.

Everyone can see the growth in what we are shifting to through high rise development but the problem is no one ever really talks about the decline in low rise development and what we are shifting away from” says George Carras, the President of RealNet Canada Inc. A proper understanding of the condominium market requires the context within the total housing market. A decade ago consumer new home choices were three low rise options for every one high-rise, today it’s a total inverse.

As low rise homes became scarce, their prices increased and they are continuing to increase by 14.5% a year now. The prices of condos have decreased slightly but mostly because the unit sizes have decreased.

“The trend started when HST was introduced in 2009 and builders had to keep costs down,” said Carras. “The index size of a new condo is about 120 sq. ft. smaller today than it was in 2009 – that’s a ten by twelve room that has been removed from the average condo today vs three years ago” As a result of this shift in housing form, the price gap between a new condo and a new low-rise home has more than doubled from $78,000 a few years ago to $177,000 today.

For more natural and geographic reasons, Vancouver has been experiencing the impacts of intensification for over two decade and in both markets, condominium development has filled the need for rental housing created by the lack of purpose-built rental units.

“When you compare downtown Vancouver and downtown Toronto from an end price perspective, and you factor in parking, those markets are now similarly priced in terms of price per square foot,” says Carras. “The difference is the land price. The land price in Vancouver is approximately double that of Toronto. In Vancouver, the price declines that have been coming out recently are not borne out of the condo space, they are borne out of the rapid rise in the low density resale homes. That rapid run up is now retreating. The condo market in general has been running stable.” ■ Michel Rémy – The Square Foot

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Pension Fund Real Estate investment $ Billions Source: Statistics Canada

$90 $80 $70 $60 $50 $40 $30 $20 $10 0 99 00

01

02

03 04 05 06 07 08 09

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Explosion in institutional capital: Where do we go from here?

By Catherine Ann Marshall and Peter Cuthbert

A Catherine Ann Marshall

Peter Cuthbert

70

t the turn of the millennium, this magazine featured an article examining the sorry state of institutional investment. Although the largest pension funds were active, the real estate recession of the 1990s caused widespread institutional apathy, verging on antipathy. As a result, by 1999 just $17 billion, or barely 3% of pension assets, were in property investments. Despite the situation, author Catherine Ann Marshall hazard to make an “optimistic” forecast that the benefits of real estate would eventually prevail and that pension fund 1 investment could reach $81 billion by 2010.

Consistent with this prediction, pension investment in real estate expanded in the mid-2000s and was on track to surpass $81 billion well before 2010.

Then, the financial crisis hit, causing investment to stall around the $70 billion mark. But, as investors realized that Canadian real estate had weathered the financial storm better than almost every other major market, capital investment came roaring back. Today pension funds have $85 billion in real estate repre-

Canadian Real Estate Forum / WINTER 2012

senting almost a 400% increase over investment at the turn of the millennium.

What’s more, other sources of institutional capital in addition to defined benefit pension plans came into their own right during the 2000s, most notably the REITs/REOCs and the Canada/Quebec Pension Plans. Add in the life insurance companies and a reasonable estimate of Canadian institutional real estate investment today tops $260 billion. Even this number is likely to be conservative, as the large private open-ended funds are excluded to avoid potential double counting.

Although there are concerns that demand for real estate could eventually overwhelm supply, there doesn’t seem to be any sign of that. Were the markets getting close to an imbalance, long-term pricing relationships would be breaking down. Instead, today’s commercial real estate pricing remains within historical bounds compared to bond yields, and the income return on real estate equity remains attractive compared to stock market dividends.

IPD Income Return vs. S&P/TSX Dividend Yield

Office Building Completions 2002-2012 BUILDINGS GREATER THAN 75,000 SQ. FT. AS AT OCT. 10, 2012

%, Showing Average and Current Spread ■ IPD Income Return (4Q MA) ■ TSX Dividend Yield (4Q MA) Source: IPD Canada, Bloomberg, Fiera Capital

Square Footage (000,000s) Source: Altus Insite © 1999-2012 Altus Group Limited

7%

2.0

6% 1.5

5% 4%

Average Spread = 3.4%

Current Spread = 3.1% 1.0

3% 2%

0.5

1% 0% Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12

Here are some factors that are helping to keep real estate markets in balance: • The universe of investable Canadian real estate is likely to be larger than most people realize. A 2012 report estimates 2 the investable market to be $784 billion • Not all the $260 billion mentioned above has been invested domestically. Foreign institutional investment has created a significant outlet for Canadian capital, with the outflow estimated to be $54 billion • The level of institutionalization of the Canadian real estate market is lower than in some other countries. The earlier estimates suggest that 26% of Canadian real estate, or $206 billion, is in institutional hands. In countries such as Australia, Hong Kong and Singapore, REITs and REOCs alone control 40-60% of the market • Significant amounts of investment have been absorbed by development, particularly new supply of office and retail.

For instance, Altus Insite reports that 51 million square feet of office space alone was built between 2002-2012.

But if additional investment continues to flow apace, is there a danger there will be no real estate left to buy in the foreseeable future? This seems highly unlikely because: • The needs of the economy and tenants continually evolve.

So even in a mature economy there is the need for development. Currently the new supply pipeline is growing and attracting significant amounts of new capital • Canada has a long way to go before the institutional ownership approaches saturation levels. In Singapore, for instance, 60% of its real estate is owned by publicly traded

0 Vancouver

Calgary

Toronto

Montreal

Halifax

($2,849,360,500)

($6,118,048,800)

($7,836,949,000)

($1,622,878,800)

($173,750,000)

Edmonton

Winnipeg

Ottawa

Quebec

($427,590,750)

($219,603,750)

($1,913,397,200)

($526,640,400)

institutions. Canadian institutions would have to buy another $264 billion of real estate to reach the same percentage of ownership • The definition of the investable real estate universe in Canada will expand over time as investors get comfortable with new types of real estate that provide income, growth, or both. In some countries, special purpose buildings such as prisons are now being counted as part of the investable real estate stock • Enormous foreign markets will increasingly attract Canadian investment. One estimate puts the global real estate investable universe at $26 trillion (US), and projects 3 it will grow to more than $47 trillion by 2020.

The Canadian market continues to be an attractive location for domestic investors as the quick recovery in capital investment following the 2008 financial crisis proved.

Despite the growing level of institutional ownership, the Canadian real estate market will continue to readily absorb domestic capital looking for safety and stability for a long time to come. ■ 1 A Pension Fund Perspective, Canadian Real Estate Forum, Nov. 2000, pp.24-26 2 A Bird’s Eye View of Global Real Estate Markets: 2012, Prudential Real Estate Investors 3 Trends in Global Investment, NCREIF Summer Conference 2011, CBRE Investors For more information on Fiera Properties Ltd. please contact: Catherine Ann Marshall, Vice President, Client Services Phone: 416-955-4875, email: cmarshall@fieraproperties.com, Peter Cuthbert, Senior Vice President, Investments email: pcuthbert@fieraproperties.com, www.fieraproperties.com Canadian Real Estate Forum / WINTER 2012

71

CANADA’S LEADING

Real Estate Forum THE GOLD STANDARD FOR REAL ESTATE INTELLIGENCE

Appointment Notices DTZ, a UGL company is pleased to announce the appointment of Colin Ross to the position of President of the Canadian brokerage operations. This newly expanded role came about as a result of the global rebranding announcement of UGL Services and DTZ (including the DTZ Barnicke sub brand) to DTZ, a UGL company.

Colin will be developing and implementing DTZ’s growth strategy for its Canadian transaction and advisory skill lines, with a focus on expanding business relationships with corporate occupiers, owners and developers, as well as government and public sector clients. Colin will be driving DTZ’s full service capabilities to provide integrated endto-end real estate solutions for both Canadian occupier and investor clients.

DTZ, a UGL company is pleased to announce the appointment of Jim Brown to the position of Senior Vice President and Manager, GTA Northeast, Canadian brokerage operations.

As a member of DTZ Canada’s Senior Management Team, Jim is responsible for the overall direction and performance of DTZ’s GTA Northeast office. The DTZ GTA Northeast office is located in Richmond Hill where our team is dedicated to providing exceptional real estate advisory services to clients from north Toronto to Markham and east to Oshawa. Through innovation, collaboration, market intelligence and a commitment to high-performance advisory, the DTZ GTA northeast office is well-positioned in the marketplace.

Jim joined DTZ in June of this year, coming from a major international real estate brokerage where he spent eight years as a key member of the office leasing team. Prior to brokerage, Jim spent 14 years leasing office space for leading Toronto landlords such as Oxford Properties, Dundee Realty and Cadillac Fairview. Jim is an active member of the York Technology Alliance having served on the Board of Directors for the past six years and participates on the 905 committee for NAIOP.

72

Canadian Real Estate Forum / WINTER 2012

A senior real estate executive who has been working in commercial real estate for more than 25 years, Colin brings with him a solid background to lead DTZ’s property services business in Canada – a crucial area of focus for further development as one of DTZ’s key global markets.

Colin originally joined DTZ in 1986 (then known as JJ Barnicke Ltd.), spending 15 years as a Toronto leasing transaction specialist. He returned in 2007, after assuming a number of roles both within and outside of the real estate industry, to take on the role as brokerage leader for the firm’s Downtown Toronto brokerage operations. He is also a Director of the Greater Toronto Marketing Alliance (GTMA), as well as a Board Member for the Financial District Business Improvement Area (FDBIA).

DTZ, a UGL company is pleased to announce the appointment of Ryan McAskile to the position of Senior Vice President and Manager, Mississauga, Canadian brokerage operations.

As a member of DTZ Canada’s Senior Management Team, Ryan is responsible for the overall direction and performance of DTZ’s Mississauga office while providing superior service to clients in Etobicoke, Burlington, Oakville, Milton, Vaughan, Brampton and Hamilton. Ryan’s philosophy is simple: he listens to his clients, identifies all of the issues, builds a skilled team to provide the best possible solution and then exceeds expectations by delivering unparalleled customer service. Ryan has a strong work ethic, positive outlook and commitment to building strong and lasting client relationships.

Ryan joined DTZ in 2002 (then known as JJ Barnicke Ltd.) as a key member of the Toronto office leasing group and has spent his career representing tenants, landlords and organizations with multiple locations. His clients include major Canadian banks, property developers, and national and international organizations. Ryan is also the committee chair in a campaign to raise money for Vasculitis Research.

DTZ, a UGL company is pleased to announce the appointment of Nick Yanovski to the position of Senior Vice President & Manager, Capital Markets, Canadian brokerage operations.

As a member of DTZ Canada’s Senior Management Team, Nick is responsible for the overall direction and performance of DTZ’s Capital Markets and Investment Group. His team provides advice on the sale and acquisition of commercial property with specialists in office and business parks, retail, hospitality, industrial, logistics and residential development. Our wide range of clients includes financial institutions, public bodies and property developers through to private investors and corporate occupiers.

In addition, Nick’s team works with clients to achieve optimal performance in the property portfolios. They seek to work in longterm partnerships with our clients and achieve their specific risk/return objectives through strategic advice, portfolio management and transaction services.

Nick joined DTZ in 1996 (then known as JJ Barnicke Ltd), and has been involved in numerous, significant investment property sales across Canada. He focuses on institutional real estate and has an excellent record of successfully closing complex transactions. Prior to joining DTZ, Nick worked for The Cadillac Fairview Corporation Ltd. and CIBC Development Corporation.

The Board of Directors of Community Trust Company is pleased to announce the appointment of Christopher Humeniuk to the position of President and Chief Executive Officer.

Chris Humeniuk has been a member of the Board of Directors, Community Trust Company, since November 2009. He was appointed President in June, 2010 and Chief Executive Officer in May, 2012.

Community Trust has operated as a flexible alternative to larger, traditional financial institutions for more than 35 years. In addition to lending solutions across most commercial asset classes, Community Trust actively offers a wide range of savings and borrowing products to its diverse base of corporate, individual and broker clients across Canada.

Chris is responsible for leading the organization forward during a period of planned growth and expansion in the commercial, residential, and retail markets.

A graduate of the University of Western Ontario, Chris is a board member of The Trust Companies Association of Canada, and sits on the mortgage advisory committee of a prominent Canadian-based asset manager.

For more information about Community Trust Company, please visit: www.communitytrust.ca .

Seven years ago, Construct Canada/PM Expo/ HomeBuilder & Renovator Expo/ DesignTrends/ Concrete Canada and The Real Estate Forum became the first major exposition and conference in Canada to be a Zero Waste Event.

Canadian Real Estate Forum / WINTER 2012

73

Downtown tax crunch, High commercial taxes keep the squeeze on Canada’s urban centres

By Ryan Eickmeier

D

Ryan Eickmeier

74

owntown Vancouver, Toronto and Montreal continue to share the dubious reputation for having Canada’s highest commercial-to-residential tax ratios, all in excess of 4:1, according to a 2012 survey of property tax rates of major urban centres produced by the Altus Group for the Real Property Association of Canada (REALpac). But, as the report also found, the gap narrowed slightly for the fifth consecutive year, moving in a more favourable direction for the business environment in Vancouver and Toronto.

Montreal, on the other hand, is heading in the opposite direction. Its downtown commercial taxes, which are increasing at an alarming rate, will likely vault past Toronto’s by next year and are rapidly approaching Vancouver¹s high levels.

“Even though the survey uncovered some improvement this year, with the exception of Montreal”, said Paul Morse, CEO REALpac, “we remain deeply concerned about the damaging impact that inequitable commercial-residential taxes have on city growth and its ability to attract business and jobs.”

“Our urban centres are vitally important and at the moment are expanding due to tenant demand and relatively low interest rates. High realty taxes are a barrier to business growth and in the long run, put a choke hold on investment in downtown office, hotel, apartment and retail property development”, explained Morse.

According to Morse, REALpac has long contended that a commercial-to-residential ratio of about 2:1 would support healthy growth, and could be achieved through gradual reductions in the commercial rate.

“Jobs are at the core of a thriving city economy”, added Morse. “With so many fundamental shifts taking place in our global economy, Canadian cities need to do what they can to accelerate business growth around where people want to live, not scare it away.”

In other findings, the annual survey showed that even though Winnipeg and Edmonton raised their ratio slightly, they still maintained the lowest ranking among municipalities surveyed. Calgary and Ottawa made significant improvements to their ratios, while Halifax, falling closer to the average, published subtle reductions to its ratio as well.

Canadian Real Estate Forum / WINTER 2012

On an absolute tax basis, Calgary, Vancouver, Edmonton and Winnipeg have the lowest estimated property taxes per $1,000 of commercial assessment, while Toronto, Ottawa, Montreal and Halifax have the highest. On the residential assessment side, Vancouver, Calgary, Edmonton and Toronto have the lowest property taxes per $1000 of residential assessment, while Winnipeg, Ottawa, Montreal and Halifax have the highest.

REALpac’s website also points out that while most cities in Canada have moved to decrease commercial tax rates in the last 10 years, residential tax rates have declined at an even faster rate.

To download the “2012 Property Tax Rate Analysis”, please go to www.realpac.ca > Publications > Property Tax Reports. ■ Ryan Eickmeier, Manager, Government Relations & Policy REALpac, reickmeier@realpac.ca About the Real Property Association of Canada REALpac is Canada’s premier industry association for investment real property leaders. Our mission is to collectively influence public policy, to educate government and the public, and to ensure stable and beneficial real estate capital and property markets in Canada.

Visit us at www.realpac.ca.

About Altus Group Limited Altus leads the global real estate industry in offering professional real estate advisory services, data solutions and intelligence about an organization’s assets, generating a wealth of knowledge and insight. With a staff of over 1,700, Altus has a network of over 60 offices in 14 countries worldwide, including Canada, the United Kingdom, Australia, Asia and the United States. Visit us at www.altusgroup.com.

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www.tfcc.ca All mortgage administration services and lending is conducted through Terra Firma Realty Corporation, a licensed mortgage administrator (LIC.#11709) and mortgage broker (LIC. #11710).

William Ferguson

Roadmap to Success in Canadian Real Estate: EXCELLENCE, LEADERSHIP, and CITIZENSHIP

The roadmap to success in the Canadian real estate industry can be summed up in three core values: excellence, leadership, and citizenship.

By William Ferguson

E

xcellence, the first core value, is the foundation, the expectation against which all actions, behaviours, and decisions are weighed. It embodies an emphasis on ethical standards, while striving for further growth and development, both personally and organizationally.

The second value, leadership, can be defined as a commitment to develop others and achieve a vision. With leadership comes the responsibility for stewardship of resources. The third, citizenship, is an overarching value, to make a difference at the local, provincial, national, and international levels.

Together these core values form a base upon which the Canadian real estate industry has established itself, with high standards for cooperation and interactions among members of the industry and with government, lenders, and investors.

These core values have made a clear difference in the success and sustainability of Canadian real estate companies today.

Canadian Real Estate Forum / WINTER 2012

75

Excellence Excellence begins with independent thinking. Rather than devolve into groupthink, which stifles creativity and kills innovation, independent thought encourages new approaches and appropriate risk-taking. When backed by strong values and a vision that is genuinely embraced by the leader, the collective strengths of a talented team are allowed to shine.

In the Canadian real estate sector, the “cowboy” days of property deals are long gone. Excellence and independent thinking require due diligence, which underscores the concept of “value” in both senses of the word. Transactions must represent a fair value for buyer and seller, and yet must also be grounded in the values of good business – fairness, integrity, and realistic thinking.

If there is a formula for success in real estate, it is achieving excellence and consistency in execution. Even when investors unearth great deals, they must execute to achieve success. Execution is the bridge between what is conceived and what is realized.

Real estate execution is not one-size-fits-all. Companies have pursued success through various vehicles – privately held enterprises as well as REITs. Although business models can differ, the commonality is the vision of the leadership team to develop, articulate, and execute a plan.

Leadership

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76

What separates the real estate professional from the speculator is the ability to match a property with market opportunity – thereby achieving shareholder returns. Managing and meeting the expectations of a variety of stakeholders requires leadership, which is grounded in realistic thinking, thorough analysis, and sound judgment. These skills can be summed up in one word: reason.

Economic logic is an obvious example of leveraging reason to achieve success and demonstrate leadership in real estate. This means tracking market growth, expanding market share, and harnessing demand, by acquiring assets at the right price and managing them effectively, to drive value and cash flow.

Leadership is always about how people are treated. To build the competency of their teams, leaders praise what is right and train what needs to be corrected. Mistakes are viewed as lessons to be learned. By providing the training, mentoring, and career opportunities that employees need and deserve, leaders establish fair performance tracking and review processes that employees will buy into.

The pillars of leadership are honesty and integrity.

These old-fashioned values are paramount in the Canadian real estate sector, which is tightly knit and, thus, the players all know each other. Top leaders in the sector have built personal reputations based upon their values and their successes over the last 30 years. Now, they are seeking to convert leadership to legacy, within their companies and their industry.

Continued on page 80 Canadian Real Estate Forum / WINTER 2012

INFORMATION TO BUILD ON!

Canada’s Leading Annual Real Estate Conferences Hear informative speakers! Stay up-to-date on the latest trends! Make personal contacts!

Be Sure to Take Advantage of Our Upcoming Events!

Montreal Real Estate forum April 4, 2013 • Fairmont The Queen Elizabeth February 14, 2013 • Hyatt Regency Montreal

Vancouver Real Estate Forum April 9, 2013 • Vancouver Convention Centre

Saskatchewan REal Estate Forum April 30, 2013 • Queensbury Centre, Regina

February 26, 2013 Metro Toronto Convention Centre, North Building

edmonton REal Estate Forum May 9, 2013 • The Shaw Conference Centre

April 11, 2013 Metro Toronto Convention Centre, South Building

MONTREAL REAL ESTATE LEASING CONFERENCE May 2013 • Montreal

CALGARY REAL ESTATE LEASING CONFERENCE

April 18, 2013 Metro Toronto Convention Centre, South Building

May 29, 2013 • Calgary TELUS Convention Centre

ATLANTIC REAL ESTATE FORUM June 18, 2013 • World Trade & Convention Centre, Halifax

May 28, 2013 Metro Toronto Convention Centre, South Building

OTTAWA REAL ESTATE FORUM October 10, 2013 • Hampton Conference Centre

Calgary Real Estate Forum

September 24, 2013 Metro Toronto Convention Centre, North Building

October 29, 2013 • Calgary TELUS Convention Centre

VANCOUVER REAL ESTATE LEASING CONFERENCE November 2013 • Vancouver Conference Centre

September 25, 2013 Metro Toronto Convention Centre, North Building

Toronto Real Estate Forum December 4 - 5, 2013 Metro Toronto Convention Centre, South Building

October 2, 2013 Metro Toronto Convention Centre, North Building

Winnipeg REal Estate Forum April 29, 2014 • Winnipeg Convention Centre

Quebec City Real Estate Forum May 2014 • Fairmont Le Château Frontenac

December 3, 2013 Metro Toronto Convention Centre, South Building

12-082

For details on these conferences and to register online visit www.realestateforums.com Sponsorship and advertising opportunities available. Contact Frank Scalisi at frank.scalisi@informacanada.com or 416-512-3815

Real Estate Forum Magazine THE GOLD STANDARD FOR REAL ESTATE INTELLIGENCE

Turbulent Economic Times Require Targeted Marketing to Influential Real Estate Decision-Makers • The Canadian Real Estate Forum magazine is an official conference publication building on the powerful brand and strong awareness that the Forum has across the country.

• This unique magazine-style publication disseminates information that will be discussed at the Forum in a high quality print to a targeted group of senior real estate executives that includes everyone attending the conferences as well as to a much broader national audience.

• Three issues per year. Spring issue (Edmonton, Montreal, and Vancouver), Fall issue (Calgary and Ottawa), Winter issue Toronto Real Estate Forum. As a result, this one of a kind program enables your corporate message to reach over 5,000 key real estate executives and professionals across Canada.

EXPOSURE TO KEY PEOPLE IN THE REAL ESTATE INDUSTRY Canadian Real Estate Forum subscribers include senior executives of the real estate industry from: • Public and private real estate organizations • REITs • Pension Funds and pension fund advisors • Banks, trust companies, life insurance and other financial institutions • Corporate real estate executives among Canada’s 500 largest companies • Federal and provincial governments • Brokers, law firms and other intermediaries

• The magazine has a strong shelf life by offering high quality articles and analysis on the major themes and topics examined at a conference along with comments and insights from leading experts and well-known practitioners.

• There is no other national business magazine that is specifically targeted at all the key Canadian real estate decision-makers who are active in office, industrial, retail and multi-unit residential sectors across the country. This is the unique element that the Canadian Real Estate Forum offers you – an opportunity to reinforce your marketing message to a very exclusive audience at a very affordable rate.

For More Information, Contact Frank Scalisi at frank.scalisi@informacanada.com or 416-512-3815

realestateforums.com Informa Canada 10 Alcorn Ave. Suite 100, Toronto, ON, M4V 3A9 Tel: 416-512-1215 • Fax: 416-512-1993 www.informacanada.com

Photo: The Knightbridge Partners

CANADA’S LEADING

INTRODUCING

Join us on April 18, 2013 Metro Toronto Convention Centre, South Building Any Questions - Contact: Sarah Segal, Director 416-512-3809 sarah.segal@informacanada.com

www.realestateforums.com

Roadmap to Success in Canadian Real Estate: Excellence, Leadership, and Citizenship Continued from page 76

Citizenship Leaders drive the way forward, but it is their teams that make the difference. Thus, good citizenship begins with an obligation to those with whom the leader works most closely: the individuals who make up the team. From the team, citizenship extends outward into the community, where values of the organization must be highly visible and demonstrated on a daily basis.

As an overarching value, citizenship draws upon and enhances excellence and leadership. Through excellence, citizenship is demonstrated in the commitments that are made and honoured, in the quality of the work, the fairness of the deal, and the benefit to all parties involved. Through leadership, citizenship is pervasive, from the handshake on a single deal to a vision for community redevelopment.

Citizenship also drives succession, as leaders look beyond themselves to those who will follow. Succession is an age-old drama, both poignant and potentially painful. It forces both the incumbent leader and the successor to confront difficult and intensely personal questions of identity.

In exercising good citizenship, the leaders of the Canadian real estate industry have shown a firm commitment to stewardship and succession, understanding their obligation to ensure that there are well-qualified successors who can one day ascend to the top positions. These new leaders will be the ones who will build upon past successes

and learn from previous failures, and continue to distinguish the industry with pride and genuine achievement.

Core Values in Action Those who have lived and worked according to the core values of excellence, leadership, and citizenship deserve to take pride in what has been accomplished individually and by the industry as a whole. The Canadian real estate industry has amassed a body of work over the decades, enduring growth pains and difficult lessons, but always advancing toward a higher standard of integrity and conduct in business.

Pride in one’s performance goes beyond the numbers.

Achievement in Canadian real estate cannot be measured in square footage alone, but in such things as employee development, community relations, and creating value for shareholders over the long term. What matters in the end are commitment and the meaningful achievements that lay groundwork for a solid future and an enduring legacy of excellence, leadership, and citizenship. ■ William Ferguson is CEO of Ferguson Partners Ltd., a global human capital consultancy, based in Chicago. He is the author of the recently released book, Market Discipline – The Competitive Advantage: Lessons from Canada’s Real Estate Leaders, published by the Real Property Association of Canada (REALpac) and available at www.realpac.ca (see Publications), as well as Keepers of the Castle, a book published by the Urban Land Institute (ULI) on the leadership of the US real estate industry.

Thank you to all our Sponsors and Advertisers!

Reach a Targeted National Audience! For more information on how you can advertise in Real Estate Forum Magazine, contact: Frank Scalisi at frank.scalisi@informacanada.com or 416-512-3815 realestateforums.com A DV E RT I S E R

Abderdeen Asset Management Inc Arcturus Realty BDO Canada LLP Bentall Kennedy Blackwood Partners Broccolini Construction Inc Calgary Economic Development Canadian Real Estate Association Canadian Urban Limited Carol McFarlane Design Inc CCIM Institute CivicAction Alliance Colliers International Community Trust Company

80

Canadian Real Estate Forum / WINTER 2012

PA G E #

9 35 21 55 27 37 11 63 31 76 69 76 19 73

A DV E RT I S E R

PA G E #

Concert Properties 61 Cougar Software 47 Crowe Soberman LLP 63 DTZ, a UGL company 17, 72, 73 Firm Capital Corporation 45 First National Financial LP IFC GE Capital Real Estate 7 Groupe Montoni 43 Habitat for Humanity Toronto 49 Harbour Mortgage Corp.

51 Informa Canada 77, 78, 79 Jones Lang LaSalle 23, 73 Kincore Holdings/DTZ Eastern Ontario 53 KingSett Capital 57

A DV E RT I S E R

PA G E #

Menkes Developments/Cushman & Wakefield 29 Miller Thomson LLP 66 MNP LLP 18 Morguard Investments Limited IBC PwC LLP 67 RBC Capital Markets Real Estate Group Inc. OBC Romspen Investment Corporation 32, 33 Standard Life 41 TD Securities Real Estate Group 40 Terra Firma Capital Corporation 75 Timbercreek Asset Management Inc. 59 TREZ Capital 39 Yardi Systems Inc. 3

REF Win 2012 Cover + Spine 2013-10-25 6:50 PM Page 2

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REF Win 2012 Cover + Spine 2013-10-25 6:50 PM Page 1

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Property Brokerage | Mortgage Brokerage | Principal Lending | Public and Private Equity | Unsecured Debt | M&A Advisory Office | Retail | Industrial | Hotels | Multi Residential | Seniors Housing | Land | rbcrealestate.com RBC Capital Markets Real Estate Group Inc. RBC Capital Markets Real Estate Group Inc., Real Estate Agency. RBC Capital Markets Realty Inc., Brokerage. This advertisement is for informational purposes only. RBC Capital Markets is a registered mark of Royal Bank of Canada. RBC Capital Markets is the global brand name for the capital markets business of Royal Bank of Canada and its affiliates, including RBC Capital Markets, LLC (member FINRA, NYSE, and SIPC); RBC Dominions Securities, Inc. (member IIROC and CIPF) and RBC Europe Limited (authorized and regulated by Financial Services Authority). ® Registered trademark of Royal Bank of Canada. Used under license.© Royal Bank of Canada 2012. All rights reserved.

CANADA’S LEADING REAL ESTATE FORUM • THE GOLD STANDARD FOR REAL ESTATE INTELLIGENCE • WINTER 2012

$931,200,000

Acquisition of Canadian Senior Housing Portfolio

Will Canada’s Investing Accolades Keep Coming in 2013?